Krebs Daily Briefing 24 May 2016


Deutsche Bank Post-Crisis Mortgage Positions Probed by SEC

The U.S. Securities and Exchange Commission is investigating whether Deutsche Bank AG inflated the value of securities in its mortgage-bond trading business and masked losses around 2013, according to people with knowledge of the matter. Investigators are looking at positions overseen by Troy Dixon, who at the time ran the bank’s trading for U.S. government-backed mortgage bonds known as agency pass-throughs, said the people. The SEC is asking whether the bank delayed recording losses on those securities over an extended period of time, said the people, who asked not to be identified because the matter is private. “We are cooperating with this investigation, which is looking into previously recognized losses on certain positions,” said Amanda Williams, a spokeswoman for Deutsche Bank. She declined to comment further. Dixon and an SEC spokeswoman declined to comment. Losses from the securities could have run into the hundreds of millions of dollars, separate people with knowledge of the matter said. Any delays in writing down bonds may have bolstered the bank’s earnings for at least a few quarters in 2013, when fixed-income markets cratered after then-U.S. Federal Reserve Chairman Ben S. Bernanke started talking about the Federal Reserve slowing its program of quantitative easing. Dixon left Deutsche Bank in 2013, according to records from the Financial Industry Regulatory Authority, an industry-funded overseer. Soon after his departure, he started a hedge fund, Hollis Park Partners. More:

Afghan Taliban meet on succession as Obama confirms leader’s death

Senior members of the Afghan Taliban met to choose a successor to their former leader Mullah Akhtar Mansour on Monday after U.S. President Barack Obama confirmed his death in a drone strike inside Pakistani territory at the weekend. The Taliban themselves have made no official statement, but two senior members of the movement said Pakistani authorities had delivered Mansour’s badly burned remains for burial in the western city of Quetta. Pakistani officials, however, denied handing over a body. On a three-day visit to Vietnam, Obama called the death “an important milestone”, saying Mansour had rejected peace talks and had “continued to plot against and unleash attacks on American and Coalition forces”. The president authorized the drone strike that killed Mansour in a remote region just on the Pakistani side of the border with Afghanistan on Saturday. Pakistani authorities have said the attack was a violation of the country’s sovereignty and an official from the foreign ministry told the U.S. ambassador in Islamabad that the attack could “adversely impact” peace talks. But reaction from Islamabad has otherwise been relatively muted and a number of questions remain over what exactly happened. An undamaged Pakistani passport in the name of Wali Muhammad, which Pakistani authorities said contained a visa for Iran, was recovered next to the burned-out car at the scene of the attack and is believed to have belonged to Mansour. The Taliban have set up a 10-member commission to try to establish how Mansour was picked out by the U.S. drones, sources within the group said. More:

Prosecutor confirms Google Paris raid in tax evasion probe

French investigators raided Google’s (GOOGL.O) Paris headquarters on Tuesday as part of a probe into tax evasion and money laundering, the financial prosecutor’s office said, confirming media reports. The investigation, which started in June last year, aims to verify whether Google Ireland Ltd (GOOGL.O) has failed in its fiscal obligations in France, the prosecutor’s office said in statement.


TSA boots head of security amid furor over long lines

The Transportation Security Administration’s head of security has been ousted amid an uproar over long lines at airport security checkpoints and intense scrutiny over bonus payments. “Kelly Hoggan has been removed from his position as head of security at TSA, following our hearing on May 12 on mismanagement at TSA,” the House Committee on Oversight and Government Reform posted on its Twitter account.  Some lawmakers blasted TSA at the hearing for giving Hoggan $90,000 in bonuses at a time when watchdog tests revealed screeners routinely failed to find weapons at checkpoints. The hearing was one in a series where whistleblowers denounced the agency for rewarding top officials with large bonuses while retaliating against workers who complained about the unfair practices. Rep. Jason Chaffetz, R-Utah, had slammed bonuses given to Hoggan, who was paid $181,500 per year. Chaffetz said Hoggan also received $90,000 in bonuses during a 13-month period that ended in November 2014. TSA Administrator Peter Neffenger told the panel he overhauled the bonus program and installed a $10,000-per-year cap. He also changed protocols to protect workers who spoke out, he said. The pressure on TSA has been building in recent weeks amid reports of unprecedented airport security lines across the nation. Passenger numbers were approaching record totals while the numbers of screening personnel had been trimmed. Those issues were supposed to be offset by travelers signing up for  the expedited PreCheck screening program, but the number of fliers registering has fallen short of expectations. Almost 500 people were stranded Sunday at Chicago’s O’Hare International Airport when long lines prevented travelers from catching flights. Cots were provided — and Chicago Mayor Rahm Emanuel promised angry travelers that the city’s airports will get more screeners. Neffenger named Darby LaJoye to serve as acting assistant administrator for the Office of Security Operations, the Associated Press reported, citing a memo addressed to TSA senior leaders. “Darby LaJoye is an experienced Federal Security Director with successful leadership tours at two of the nation’s largest airports, Los Angeles International Airport in California and John F. Kennedy International Airport in New York,” the memo said.

Machine Bias

ON A SPRING AFTERNOON IN 2014, Brisha Borden was running late to pick up her god-sister from school when she spotted an unlocked kid’s blue Huffy bicycle and a silver Razor scooter. Borden and a friend grabbed the bike and scooter and tried to ride them down the street in the Fort Lauderdale suburb of Coral Springs. Just as the 18-year-old girls were realizing they were too big for the tiny conveyances — which belonged to a 6-year-old boy — a woman came running after them saying, “That’s my kid’s stuff.” Borden and her friend immediately dropped the bike and scooter and walked away. But it was too late — a neighbor who witnessed the heist had already called the police. Borden and her friend were arrested and charged with burglary and petty theft for the items, which were valued at a total of $80. Compare their crime with a similar one: The previous summer, 41-year-old Vernon Prater was picked up for shoplifting $86.35 worth of tools from a nearby Home Depot store. Prater was the more seasoned criminal. He had already been convicted of armed robbery and attempted armed robbery, for which he served five years in prison, in addition to another armed robbery charge. Borden had a record, too, but it was for misdemeanors committed when she was a juvenile. Yet something odd happened when Borden and Prater were booked into jail: A computer program spat out a score predicting the likelihood of each committing a future crime. Borden — who is black — was rated a high risk. Prater — who is white — was rated a low risk. Two years later, we know the computer algorithm got it exactly backward. Borden has not been charged with any new crimes. Prater is serving an eight-year prison term for subsequently breaking into a warehouse and stealing thousands of dollars’ worth of electronics. Scores like this — known as risk assessments — are increasingly common in courtrooms across the nation. They are used to inform decisions about who can be set free at every stage of the criminal justice system, from assigning bond amounts — as is the case in Fort Lauderdale — to even more fundamental decisions about defendants’ freedom. In Arizona, Colorado, Delaware, Kentucky, Louisiana, Oklahoma, Virginia, Washington and Wisconsin, the results of such assessments are given to judges during criminal sentencing. Rating a defendant’s risk of future crime is often done in conjunction with an evaluation of a defendant’s rehabilitation needs. The Justice Department’s National Institute of Corrections now encourages the use of such combined assessments at every stage of the criminal justice process. And a landmark sentencing reform bill currently pending in Congress would mandate the use of such assessments in federal prisons.


Police Officer in Freddie Gray Case Is Acquitted of All Charges

BALTIMORE — The acquittal Monday of a police officer charged in the arrest of Freddie Gray, the black man who suffered a fatal spinal cord injury while in police custody last year, immediately renewed questions of whether any of the six police officers charged in the case would be convicted in connection with his death. Officer Edward M. Nero’s acquittal on four charges for his role in the opening moments of Mr. Gray’s arrest was a second blow to the prosecution’s sweeping case, announced as Baltimore was still seething after the unrest following Mr. Gray’s death in April 2015. The first trial, against Officer William G. Porter, ended in a hung jury in December, touching off legal maneuvers that brought proceedings against the officers to a temporary halt. But legal experts said Judge Barry G. Williams’s finding was a narrow one that does not forestall the possibility of convictions against other officers charged in the case. They said Judge Williams’s ruling turned not on a wholesale rejection of prosecutors’ broad legal theory, but rather on his determination that Officer Nero, 30, was a bit player in Mr. Gray’s arrest.

Judge Williams, who ruled on the case after the officer opted to forgo a jury trial, said in his verdict that there were other officers who played — or who could have reasonably been expected to play — a bigger role in the encounter. And while that is no guarantee that other officers will be found guilty, it is those officers who will stand trial in the coming months. “The judge did seem to create a hierarchy of responsibility and say that Officer Nero was at the bottom,” said David Jaros, a professor of law at the University of Baltimore who has been watching the case. “Now, let’s see as we go up whether or not anyone else is sufficiently responsible as to be criminally liable.” Judge Williams read his verdict matter-of-factly while Officer Nero stared straight ahead. “There has been no information presented at this trial that the defendant intended for any crime to happen,” Judge Williams said. At the conclusion of his 30-minute explanation, he added, “The verdict on each count is not guilty.” Officer Nero rose to his feet and wiped away tears as his supporters — including Officer Garrett E. Miller, who is also charged in the case — moved in to embrace him.


Penalty Against Bank of America Overturned in Mortgage Case

A federal appeals court dealt a blow to the federal government’s effort to hold Bank of America accountable for the sale of shoddy mortgages before the financial crisis, overturning a $1.27 billion penalty the bank had been ordered to pay in the so-called hustle case. A three-judge panel ruled on Monday that federal prosecutors had failed to prove that Bank of America’s Countrywide unit had defrauded Fannie Mae and Freddie Mac, the government-backed mortgage firms, when it sold them troubled loans. The judges said that while Countrywide employees may have sold loans in 2007 and 2008 that were not of the quality that was promised in the contracts with Fannie and Freddie, there was no evidence that these sales — an element of a loan program at Countrywide that was known informally as hustle — were part of a deliberate deception. “The trial evidence fails to demonstrate the contemporaneous fraudulent intent necessary to prove a scheme to defraud,” Judge Richard C. Wesley wrote in a 31-page ruling. The ruling by the United States Court of Appeals for the Second Circuit is one of a few setbacks in the Justice Department’s sprawling prosecution of Wall Street after the mortgage crisis. It is also a disappointment for Preet Bharara, the United States attorney for the Southern District of New York, who brought the prosecution against Bank of America and called its practice of rubber-stamping risky loans and selling them to Fannie Mae and Freddie Mac “spectacularly brazen.”

The bad lending ultimately required a taxpayer-financed bailout of the nation’s biggest banks, including Bank of America.


Banks Keep Cutting Bond Traders as One-Third Gone Since 2011

The world’s biggest banks have shed about one in three bond traders since 2011 as rules making some businesses less profitable dovetail with volatile markets that are spooking investors, according to research from Coalition Development Ltd. The total count of fixed-income, currency and commodity traders and salespeople at global banks was 18,300 in the first quarter of 2016, 32 percent less than the same period five years ago, Coalition data shows. Headcount fell 5 percent from a year earlier as lenders including Credit Suisse Group AG, Morgan Stanley, Deutsche Bank AG and Goldman Sachs Group Inc. fired workers in so-called FICC businesses to cut costs. Morgan Stanley:  Regulators seeking to avoid another financial crisis have limited banks’ leverage when trading fixed-income products, making those businesses less profitable and prompting lenders to scale back operations. The new rules have coincided with a slump in commodity prices and a slowdown in the Chinese economy that helped bring about what Coalition described as the weakest start to the year for the industry since the financial crisis. “Revenues fell significantly, driven by a weak trading environment in the first two months of the quarter and a lack of one-off events” as seen in the year-earlier period, Coalition wrote in a report on the data. More:


Gawker Founder Suspects a Common Financer Behind Lawsuits

At first, Nick Denton, the founder of Gawker Media, thought it an unlikely conspiracy theory. Now, he’s starting to believe it himself. For the last several years, Mr. Denton has been the target of a lawsuitbrought by the wrestler Hulk Hogan in the now-infamous defamation case over Gawker’s publication of a sex tape — an editorial choice that recently resulted in a $140 million jury award to Mr. Hogan. The appeals process is likely to drag on for years, and some legal experts predict that the judgment will ultimately be overturned or the award greatly reduced. During the trial, a low hum of speculation emerged within the legal community that Mr. Hogan’s legal case, which dragged on for more than three years, might be funded by someone other than Mr. Hogan — and for reasons other than simply inflicting financial pain on Gawker. At the time, the questions were provoked by several strategic decisions on Mr. Hogan’s side that didn’t appear economically rational. More on that in a moment. Back then, Mr. Denton dismissed the idea of a third party secretly underwriting Mr. Hogan’s case as “rather conspiracy-theorylike.” But in recent weeks, in the face of several new lawsuits brought against Gawker that are unrelated to Mr. Hogan’s case and seem to personally attack certain Gawker writers, Mr. Denton is having second thoughts. All of the new cases, like Mr. Hogan’s, were brought by Charles J. Harder, a Los Angeles-based litigator, working on a contingency basis, who has most likely run up huge legal bills and expenses. Gawker has said it has already spent as much as $10 million on its side of the case. Mr. Denton has begun to question whether Mr. Harder has a benefactor, perhaps one of the many subjects of Gawker’s skewering coverage. “My own personal hunch is that it’s linked to Silicon Valley, but that’s nothing really more than a hunch,” Mr. Denton told me. “If you’re a billionaire and you don’t like the coverage of you, and you don’t particularly want to embroil yourself any further in a public scandal, it’s a pretty smart, rational thing to fund other legal cases.”

Virginia Gov. Terry McAuliffe under investigation by DOJ over possible illegal campaign contributions

Federal officials are investigating whether Virginia Gov. Terry McAuliffe’s 2013 campaign accepted illegal campaign contributions, sources familiar with the investigation confirmed Monday to Fox News.

The Democratic governor and Clinton ally is the target of a Justice Department investigation into whether he violated campaign finance laws. The probe, first reported by CNN, involves a $120,000 donation from Chinese businessman Wang Wenliang through his U.S. businesses. U.S. election law prohibits foreign nationals to donate to political races. McAuliffe’s attorney, Marc Elias, said in a statement his office was not aware of the investigation, but would cooperate if contacted by federal officials. “We cannot confirm the CNN report.  Neither the Governor nor his former campaign has knowledge of this matter, but as reported, contributions to the campaign from Mr. Wang were completely lawful,” Elias said. “The Governor will certainly cooperate with the government if he is contacted about it.” A spokesman for Wang told CNN the businessman holds permanent resident status in the U.S. Wang also has been a donor to the Clinton foundation, pledging $2 million, CNN reported. McAuliffe now becomes the second consective Virginia governor to be investigated by the Justice Department. McAuliffe’s predecessor in the governor’s mansion, Republican Bob McDonnell, was convicted on federal corruption charges but has appealed his conviction to the U.S. Supreme Court. Before winning his gubernatorial campaign in 2013 over Republican Ken Cuccinelli, McAuliffe made his name in national Democratic politics as a prolific, well-connected fundraiser with close ties to Bill and Hillary Clinton. Although McAuliffe is close to the Clintons, a law enforcement official told the Associated Press that the investigation of McAuliffe is unconnected to a separate FBI investigation looking at the legality of private email servers that Hillary Clinton used while serving as secretary of state. Last year, McAuliffe’s political action committee, Common Good Va., returned a $25,000 donation from a company with ties to Angola’s state-owned oil company after The Associated Press raised questions about its legality. Federal law prohibits campaigns at any level from receiving money from outside the U.S. McAuliffe’s international business connections also came under scrutiny prior to his gubernatorial campaign. He served as chairman of GreenTech Automotive, a company that hoped to bring supercompact automobiles to the U.S. market. The company attracted hundreds of thousands of dollars in foreign investment, in part through a federal program that granted visas to investors who met certain job-creation thresholds.


Trump Boasts of Rapport With Wall St., but the Feeling Is Not Quite Mutual

By Donald Trump’s reckoning, his relationship with Wall Street could not be better. “I am friends with all the major banks,” he said in an interview. “They are dying to do business with me.” The presumptive Republican nominee recently tapped Steven T. Mnuchin, a former Goldman Sachs partner and chairman and chief executive of Dune Capital Management, a private investment firm, as his national finance chairman. Carl C. Icahn, the billionaire activist shareholder, was an early supporter. Thomas J. Barrack Jr., founder and executive chairman of the private equity firm Colony Capital, is scheduled to host a Los Angeles fund-raiser later this month, Mr. Mnuchin said. “I think we will have very broad support,” Mr. Mnuchin said of the financial community. Still, an examination of financial records and interviews with nearly two dozen executives at financial firms show that Mr. Trump’s relationship with the financial industry is far more nuanced than he suggests. While some bankers said they had a personal relationship with Mr. Trump, a majority of those interviewed about him said they had never met him, and either had not done business with him or would not do so because of past dealings that did not end well. This month Mr. Trump submitted a financial disclosure report that was released by the Federal Election Commission. In that document there was no indication that entities associated with Mr. Trump had lending relationships with most of the country’s biggest banks, including Citigroup, JPMorgan Chase, Goldman Sachs and Morgan Stanley. One of his largest banking relationships is with Ladder Capital, a small New York firm that typically extends mortgages in amounts below what generally interests the big Wall Street banks. “His roots and connections on Wall Street are fairly shallow,” said Roy C. Smith, a former partner at Goldman Sachs who teaches finance at New York University. This observation may play well with Mr. Trump’s supporters, who have flocked to him in part because he is not part of the establishment. Though Mr. Trump this month recruited Mr. Mnuchin to lead his fund-raising effort, Hillary Clinton, the Democratic front-runner, has made millions of dollars giving paid speeches to corporations, banks and other organizations, including Goldman Sachs, drawing fire from her opponents. Part of the reason Mr. Trump has fewer recent dealings with Wall Street stems from a change in his business model. The casino empire that resulted in huge losses, more than a billion dollars in debt and hard feelings across Wall Street, is gone. He also expanded into fee-generating marketing agreements, which are not capital intensive and which banks typically do not lend large sums of money against. More:


Ryan: Trump could win, but I’m not ‘betting’ on it

Paul Ryan loves the word “unity,” but his definition of that term differs sharply from Donald Trump’s vision of a smiling speaker at his side, mouth shut and domesticated — just like Chris Christie. Ryan, who made peace with Trump earlier this month but remains wait-and-see on the question of whether to endorse the presumptive GOP nominee, sees his 2016 job as ensuring that the party doesn’t become a Cult of Trump — he wants to replace id with ideas. The sooner Trump gets it, the quicker he’ll jump on the unity bus, a relaxed but adamant Ryan suggested during a 45-minute interview last week for Politico’s “Off Message” podcast. “When people go to the polls in November, they are not just picking a person … they’re also picking a path,” said Ryan, who spoke repeatedly of unity with the front-runner — while refusing to bet on a Trump victory this fall. “I think this is a ‘we,’ not just one person,” he added. “I very much believe in a type and style of politics that may not be in vogue today but, I still think, nevertheless, is the right kind of politics.” It was that core belief, he says, more than any rank political calculation, that led Ryan to say he was “just not ready” to back Trump in a shocker of a CNN interview on May 6. Standing in front of an idyllic waterfall, Ryan said he wanted to see “a standard-bearer that bears our standards” and called on Trump to rein in his worst impulses if he wanted Ryan’s support. The two men met days later in Washington, amid wall-to-wall coverage. The meeting was amicable, though noncommittal, with the duo issuing a post-confab statement saying, “We … remain confident there’s a great opportunity to unify our party and win this fall.” In our interview, the speaker put a finer, sharper point on that — and positioned himself as the conscience of the conservative movement, with plans to counterprogram Trump’s bombast with the low-tax, lean-government budget substance that has made him a darling on the right. And he doesn’t seem to be willing to relinquish the leverage he has gained by holding out, even as top House deputies, like Kevin McCarthy, flock to Trump’s banner. When I asked Ryan whether he intends to keep calling out Trump, he responded like a high school dean talking about a truant who happens to be the most popular kid at school. “I will,” he said. “I’ve done that in the past, and I will do that in future if need be, and I hope it’s not necessary.” More:



Interstate fight goes federal

The future of Interstate 20/59 through downtown Birmingham will be the topic of a Monday afternoon meeting between U.S. Secretary of Transportation Anthony Foxx, Congresswoman Terri Sewell and a delegation of top Birmingham businessmen and community leaders. The meeting is scheduled for 2 p.m. at the Longworth House Building in Washington. The Birmingham delegation was to have been led by Birmingham Mayor William Bell, but Weld learned Sunday night that Bell was hospitalized Sunday afternoon and will not make the trip. The city’s public information officer, April Odom, confirmed this morning that the mayor “is recovering from knee surgery after aggravating an existing injury” while attending the Regions Tradition golf tournament at Greystone Golf & Country Club in suburban Shelby County. Birmingham City Councilor William Parker, who was already in Washington on other city business, will represent the city at the meeting.  The meeting with Foxx, including Bell’s participation, was coordinated by Move 20/59, the nonprofit organization launched late last year by a group of influential private donors. Move 20/59 advocates alternatives to the Alabama Department of Transportation’s plans to expand the highway through downtown. Three of Move 20/59’s supporters, retired EBSCO Industries CEO Dixon Brooke, Harbert Management Corporation Executive Vice President William W. Brooke and Temple Tutwiler, president of Tutwiler Investments, are part of the nine-member delegation traveling to Washington. “Our group has been talking with Mayor Bell and others and [has] been seeking an opportunity to meet with Secretary Foxx and explain the situation in Birmingham,” Dixon Brooke told Weld this morning, prior to the Birmingham delegation’s departure. “We feel that this discussion fits with his ‘Smart Cities’ program and his overall vision for transportation policy in the 21st century.”  More:


Alabama utilities scramble to address drinking water contaminants identified by EPA

When the U.S. Environmental Protection Agency issued a health advisory last week that eight Alabama water systems contained levels of chemicals that could cause health problems, especially in pregnant woman and breast-fed infants, thousands of Alabamians were shocked to find that the water coming from their taps may not be as safe as they thought. So were the managers of the eight named water systems, toxicologists at the Alabama Department of Public Health and state regulators at Alabama Department of Environmental Management, who said they did not know in advance that the advisory was coming. While the new advisory is not an enforceable regulation or action, ADEM and ADPH said they will work together with the affected systems to bring them below the new advisory level.  According to an email from ADEM external affairs chief Lynn Battle, some water systems along the Coosa River may be able to decrease their output of the chemicals, called PFOS and PFOA, by simply switching wells and that some operators have already done so. ADEM says additional monitoring is needed along the Coosa basin and will be conducted by the named systems and the department.  A spokesman for the Gadsden Water Works said their water may already be below the new threshold, according to the most recent testing, but additional tests will be conducted over the next few weeks. Along the Tennessee River, ADEM is working with providers on a case-by-case basis to address the issue. John Guarisco, a toxicologist with the Alabama Department of Public Health, said that the advisory caught everyone by surprise but that the water systems are working hard to meet the new guidelines. “They’re going to be diligently working on this,” Guarisco said. “They’re trying desperately to do the best they can. “They don’t want to put out a product that’s going to cause harm. It’s not in their makeup as human beings, so they’re going to work and try to get this under control as fast as they can.” More:

Gov. Robert Bentley seeks to dismiss lawsuit filed by Spencer Collier

Attorneys for Gov. Robert Bentley filed a motion in court on Monday asking a judge to dismiss a wrongful termination lawsuit filed by former ALEA Secretary Spencer Collier. Collier, the state’s top law enforcement officer who was fired by Bentley in March, filed his lawsuit against Bentley, Rebekah Caldwell Mason and others in April. The day Collier was fired, he went public with allegations of an affair between Bentley and Mason – igniting the scandal that has engulfed the governor’s office. The court filing specifically states it is on behalf of “Bentley for Governor, Inc.” – one of five defendants named in Collier’s lawsuit. The other defendants are Bentley, ALEA Secretary Stan Stabler (Collier’s replacement), Mason and Alabama Council for Excellent Government (the dark money group that paid Mason’s salary). None of the other defendants have filed responses to the lawsuit. The motion to dismiss argues that Collier’s lawsuit “fails to state a claim” against Bentley for Governor, Inc. Mason worked for Bentley’s re-election campaign before being hired as his senior political adviser. “The only basis of the complaint against this defendant appears to be the allegations that defendant Mason is an agent or servant of this defendant,” the motion states. “Said allegations in this regard are insufficient and not in accordance with the Alabama Rules of Civil Procedure. “The complaint is so general, vague and/or ambiguous that Defendant cannot reasonably frame or file a responsive motion and/or pleading. Plaintiff has failed to provide sufficient factual descriptions of the alleged actions by this Defendant.” Motion to Dismiss filed by Gov. Bentley

Taxpayers on Hook for Bentley, Stabler High Powered Attorney

MONTGOMERY—Former “Top Cop” Spencer Collier is suing Governor Robert Bentley, Stan Stabler (Collier’s replacement), and others in a civil lawsuit. Bentley and Stabler are being represented by John Neiman from the Birmingham-based law firm, Maynard Cooper & Gale. The pair are being sued personally, and not in their official capacity as Governor or ALEA Chief. So, why are taxpayers on the hook to pay Bentley and Stabler’s high-dollar defense attorney? Bentley’s office confirmed an emergency contract for Neiman was submitted, and that indeed taxpayer dollars will be used to defend these two men. Collier is suing Bentley for wrongful termination and for defamation of character as it relates to statements Bentley made to’s Chuck Dean and others. He is also suing Stabler, and others, for defamation of character related to accusations of misusing State funds, made in other news reports. Neiman served as Solicitor General under Attorney General Luther Strange for three years, leaving in 2014 to reenter private practice. According to the firm’s website, Neiman is a shareholder and “lead counsel in trial-level litigation, involving water disputes between multiple states and the federal government.” The “water war,” as it is often referred to, is a big case with lots of billable hours for Maynard Cooper & Gale. The water dispute is a decades-old lawsuit over a water-use conflict between the states of Georgia, Alabama, and Florida, over the Apalachicola-Chattahoochee-Flint River Basin and the Alabama-Coosa-Tallapoosa River Basin. Before 2015, Alabama’s lead counsel in the water wars was, Matt Lempke, from Bradley Arant Boult Cummings LLP., former Gov. Bob Riley’s favorite law firm. But shortly after leaving the Attorney General’s Office, Neiman became lead for the State. Prior to Bentley taking office in 2011, Maynard Cooper & Gale earned $1.6 million from 2008 to 2010, for work it performed for the State. During Bentley’s tenure, Maynard Cooper & Gale has received almost $3.7 million with over $500,000 in first seven months of fiscal year 2016. Over $130,000 was paid directly to Maynard Cooper & Gale from Bentley’s office. Open Alabama list the funding agency as the General Fund. More:

Study finds Alabama is one of America’s worst run states

High unemployment rates, debt, low per capita income – these are some of the factors that a recent study used to determine the best and worst-run states in the country, and unfortunately, Alabama ranked among the worst. A study by 24/7 Wall Street showed Alabama as the fifth worst-run state. For those Alabamians who have followed the state legislature the last few years this probably comes as no surprise, as budget issues and leadership woes have made national headlines. But a study of each state’s debt per capita, credit rating, unemployment rate, household income and poverty rate revealed Alabama has plenty of problems and a great deal of work to do. Alabama’s poor social and economic outcomes led to its poor ranking, as the state’s per capita tax revenue is only $1,911 – a smaller amount than most other states. Alabama’s weak tax revenue can be partially attributed to low incomes among its residents and some of the lowest property taxes in the country. The typical Alabama household makes just $42,830 annually, significantly less than the national average of $53,657. The state’s minimum millage rate ranks also among the lowest in the country. Approximately 20 percent of state residents live below the poverty line, with a poverty rate higher than all but three other states. Alabama’s 5.9 percent unemployment rate is among the highest in the country. Benefits for the state’s unemployed workers are among the lowest in the nation. Across the country, the average unemployment insurance beneficiary receives close to $321 a week. In Alabama, the average weekly unemployment insurance payout is only $214. Rhode Island, Mississippi, Illinois and New Mexico were the only states the study that fared worse than Alabama. The five best-run states were North Dakota, Wyoming, Iowa, Nebraska and Minnesota.

Alabama House Speaker Mike Hubbard goes on trial today: Everything you need to know

Nineteen months after a special grand jury charged him with 23 felony ethics violations, Alabama House Speaker Mike Hubbard goes on trial today. A jury of nine men and seven women, including four alternates, will hear the evidence and decide whether the speaker used his public offices for personal gain. Opening arguments are set for today in Lee County Circuit Court in Opelika. A conviction on any of the charges would remove Hubbard from office. Each count carries a potential prison sentence of two to 20 years. Hubbard has denied any wrongdoing and has called the case a “political witch hunt.” His lawyers have claimed the ethics law is being applied in ways that are overly broad and to activities that were legal. They have spent much of the time since the indictment trying to get Lee County Circuit Judge Jacob Walker to dismiss the charges, without success. Prosecutors have said the case is no “witch hunt,” saying the grand jury heard from over 150 witnesses in a year before issuing the indictment in October 2014. The state claims that Hubbard:

  • Used his former position as state Republican Party chairman to direct more than $1 million in GOP money to his businesses, Craftmaster Printers and the Auburn Network.
  • Voted for legislation that uniquely benefited American Pharmacy Cooperative Inc., while his company, Auburn Network, was receiving $5,000 a month under a consulting contract with APCI.
  • Used his office for personal gain through a $12,000 per month contract with Southeast Alabama Gas District.
  • Solicited and received $7,500 per month from Edgenuity Inc., a company that employed a lobbyist in Alabama and had active interests in state government.
  • Used his office for personal gain through a $10,000 per month contract with a business owned by Robert Abrams.
  • Solicited and received a total of $600,000 in investments in Craftmaster Printers from four “principals.” Principals are defined under the ethics law as people or businesses that employ a lobbyist.
  • Solicited and received help with his business, Auburn Network, from former Gov. Bob Riley, Minda Riley Campbell, Riley’s daughter, and William Canary, president and CEO of the Business Council of Alabama. All three are registered lobbyists.

In a motion to have the case dismissed filed in August 2015, Hubbard’s lawyers countered each of the charges, claiming:

  • The use of Republican Party money was protected by the First Amendment and the ethics act could not be applied to party chairs.
  • Hubbard relied on guidance or preclearance from the staff of the Ethics Commission in entering his consulting contracts.
  • Hubbard did not use the “mantle of his office” to help Southeast Alabama Gas District.
  • Hubbard did not use his public office to obtain the contract with Robert Abrams’ company.
  • Hubbard had a constitutional right to lobby for his business clients.
  • Three of the four “principals” who provided investments to Craftmaster Printers were not actually “principals” as defined under the ethics law.
  • The investors received the full value for their investments.
  • Riley, Campbell and Canary are longtime friends of Hubbard and their assistance was motivated by friendship and is not prohibited by the ethics law.


These witnesses will make or break Mike Hubbard – and Alabama

There are moments in Alabama’s embarrassment that you just look forward to. Like the trial of Alabama House Speaker Mike Hubbard. Not because of satisfaction, or glee, or righteous indignation. Not because of anger or envy or because it’s fun to watch the haughty fall. It’s because the trial of Hubbard, the poster child for GOP change who became the poster child for same-ol’ same-ol’ – allows us inside. Into the smoke-filled rooms, behind the scenes at the Goat Hill sausage plant. It gives a rare glimpse into the shadow world where decisions are made and sold to a gullible public like a product that never quite lives up to its billing. Just look at the witness list in the Hubbard trial, which begins in earnest with opening statements today. It’s an all-star team of the shadow society. The chance to see them under oath is a chance that can’t be missed by anybody who really cares what happens in this state, who really understands it’s not the will of the people, but the will of those who lurk in the dark corners that makes things happen. There are names on that list that blow you away. Sure. What will former Gov. Bob Riley say about Hubbard’s fawning emails, about Hubbard begging about money and complaining that people didn’t want to pay him even though he was Speaker of the House. Riley’s daughter Minda could testify too, and more than one life will hang in that balance. Gov. Bentley – still mired in his own political implosion – will also take the stand to testify, it is believed, about Hubbard’s attempts to lobby him on behalf of a private company. Which is illegal. He probably won’t have to talk about his own personal failings while on the stand, but Lord, wouldn’t all of Alabama like to have him under oath for five minutes? Or three? My gosh this list is a veritable who’s who and who-knows-what of Alabama politics. There are so many state legislators on the list you’d think it came with an open bar. RSA Chief David Bronner and two-year college Chancellor Mark Heinrich are on the list, and so is Medicaid boss Stephanie Azar. But they are likely perfunctory. There are business types too – most of whom will testify that Hubbard asked them for money to save his businesses. Yella Fella himself, Jimmy Rane, will be asked to testify against his friend. Businessmen Will Brooke and Jim Holbrook will be asked their same. Their bacon is off the heat, as long as they put Hubbard’s in the pan. The fun starts with the names that live most often in the shadows. The people who pull the strings and pay the stringers, like lobbyist Dax Swatek and his partners. Put them under oath and half of Montgomery breaks out in a sweat. My God, what if they tell the truth? There’s Ferrell Patrick, lobbyist for a pharmaceutical company that paid Hubbard copious amounts of money – apparently for his influence. His testimony will probably be limited to that, but if he spilled the beans, the whole state would eat chili. Jason Isbell is on the witness list, too. But don’t get excited. It’s not that Jason Isbell. Just the political one. There’s the governor’s former chief of staff, David Perry, and Hubbard’s communications director Rachel Adams. But if you really want to look forward to something, wait for Hubbard’s ex Man Friday and former chief of staff Josh Blades to take the stand. If he’s smart – which is not really at issue here — Hubbard should fear Josh Blades like Nixon feared the tapes.

He’s the one to watch. Forget the governors. Blades can cut deep. We’ll just have to wait to see who bleeds.


Morning Money

TRUMP AND WALL STREET: THE TRUTH — Couple of pieces out on Monday from Bloomberg and the New York Times on Donald Trump’s relationship with Wall Street (both are below). But the reality can be summed up pretty quickly: Wall Street loathes the man. While you can find several examples of people who like Trump (Anthony Scaramucci, Larry Kudlow, Carl Icahn), the majority of Wall Street CEOs and rank and file bankers and traders and their lobbyists view Trump as lousy to do business with (because they say he’s cheap on fees an likely to sue) and a massive risk on both foreign and domestic policy. Wall Street types generally don’t like risk.

And while Trump has said he wants to junk Dodd-Frank he has also promised some kind of alternative. The idea that the populist Trump is going to propose something that bankers would like is … well it’s not likely. Plus, Wall Street has mostly learned to live with Dodd-Frank after spending six years implementing its restrictions and higher capital requirements. Starting over with an entirely new financial reform law is not what anybody in the industry wants. Sure, bankers worry that Hillary Clinton is lurching left in the Age of Bernie but plenty of them will either sit out 2016 or actively work to defeat Trump.

Bloomberg’s Kevin Cirilli: “The banking industry is flummoxed on what to do about … Trump, even as their fears grow that his likely opponent has moved too far to the left. … At a private meeting last week in Washington, representatives from the largest financial institutions in the nation discussed Trump’s candidacy at a gathering that focused on the latest developments on Dodd-Frank and Hensarling’s proposal.

“A few key questions emerged: Would Trump’s agenda be aligned with the forthcoming proposal from Hensarling and House Speaker Paul Ryan? And should they reach out to Trump’s campaign staff to inquire about his economic agenda? According to two people who attended the meeting, the group decided against reaching out after several representatives expressed fears that Trump could criticize them on social media if talks took a bad turn.”

NYT’s Susanne Craig: “By Donald Trump’s reckoning, his relationship with Wall Street could not be better. ‘I am friends with all the major banks,’ he said in an interview. ‘They are dying to do business with me.’ … Still, an examination of financial records and interviews with nearly two dozen executives at financial firms show that Mr. Trump’s relationship with the financial industry is far more nuanced than he suggests.

“While some bankers said they had a personal relationship with Mr. Trump, a majority of those interviewed about him said they had never met him, and either had not done business with him or would not do so because of past dealings that did not end well. This month Mr. Trump submitted a financial disclosure report [with] … no indication that entities associated with Mr. Trump had lending relationships with most of the country’s biggest banks, including Citigroup, JPMorgan Chase, Goldman Sachs and Morgan Stanley.”

COURT THROWS OUT BANK OF AMERICA PENALTY — POLITICO’s Jon Prior: “A U.S. appeals court today threw out a $1.27 billion penalty levied against Bank of America in connection with shoddy mortgages sold by the former subprime giant Countrywide. The loans in question were offered through Countrywide’s ‘hustle’ program in 2007 and sold to now government-owned Fannie Mae and Freddie Mac even though executives knew the mortgages did not meet certain quality standards.

“The ruling reverses a lower court decision forcing the bank to pay the penalty and is a defeat for a Justice Department long criticized for not successfully prosecuting mortgage firms and banks for their role in the 2008 crisis. The White House has touted such settlements as evidence that the Obama administration has been tough on the firms that contributed to the implosion of the housing market.”

INDUSTRY REACT — Per a financial industry source: “A lot of good news here: tough day for the too-big-to-jail crowd, as it seems that yet again the judicial system has decided that losing money isn’t a crime; yet another decision overturned for Jed Rakoff, the populist gadfly of the SDNY; and best yet [US Atty] Preet [Bharara] once again over-indicts and under-delivers. Look for banks to question whether they should continue agreeing to billion dollar settlements and instead put the government to its proof.”

REFORMERS REACT — Dennis Kelleher, President and CEO of Better Markets: “Turning law, logic and common sense on its head, the Second Circuit Court of Appeals overturned a jury decision today because Countrywide’s fraud was not intended years earlier when a contract was signed. This hyper-technical decision is not only a miscarriage of justice but also provides a roadmap for Wall Street to get away with more fraud in the future”

TRUMP LEADS ON ECONOMY — Via NBC/WSJ poll: “Forty-seven percent of Americans believe that Trump is the better candidate to deal with the economy, versus 36 percent who believe Hillary Clinton is superior on the issue … More than half — 56 percent — chose Clinton as the better candidate to handle foreign policy, compared to just 29 percent who picked Trump. Clinton enjoyed a 10 point advantage over Trump on the question of who would make a better commander-in-chief, garnering 43 percent to Trump’s 33 percent”

DRIVING THE DAY — President Obama is in Hanoi and Ho Chi Minh City, Vietnam … Treasury Secretary Jack Lew this afternoon “will meet with academics and experts to discuss the state of the global economy and U.S.-China economic relations in advance of the eighth U.S.-China Strategic and Economic Dialogue (S&ED)” … At 2:30 pm, U.S. Senator Elizabeth Warren (D-Mass.) “will be the lead off speaker at an event in Washington, DC, where labor and community based organizations representing more than 25 million Americans will launch a nationwide campaign to win concrete legislative gains on the federal, state and local levels” … House Financial Services has a hearing at 10:00 a.m. on terrorism financing … Senate Banking at 10:30 a.m. on Iran sanctions … House Natural Resources is scheduled to start marking up the Puerto Rico bill at 5:00 p.m. … New Home Sales at 10:00 a.m. expected to rise 521K from 511K.

NORTH KOREANS SAY NO THANKS TO TRUMP — Reuters: “Trump’s proposal to meet North Korean leader Kim Jong Un is a ‘kind of propaganda or advertisement’ in his election race, a senior North Korean official said on Monday. Trump, in a wide-ranging interview with Reuters in New York last week, said he is willing to talk to the North Korean leader to try to stop Pyongyang’s nuclear program, proposing a major shift in U.S. policy toward the isolated nation.

“‘It is up to the decision of my Supreme Leader whether he decides to meet or not, but I think his (Trump’s) idea or talk is nonsense,’ So Se Pyong, North Korea’s ambassador to the United Nations in Geneva, told Reuters on return from Pyongyang after attending the first ruling party congress in 36 years. … ‘This is useless, just a gesture for the presidential election.’ ‘There is no meaning, no sincerity,’ So added”

SANDERS URGES DEMS TO REJECT PR DEAL — POLITICO’s Seung Min Kim: “Bernie Sanders is pushing fellow Senate Democrats to reject the Puerto Rico debt deal reached by the Obama administration and Speaker Paul Ryan last week – a move that may help trigger fresh opposition to the agreement from the left. In a letter to Senate colleagues released Monday, Sanders rips the agreement to restructure the island’s $70 billion in debt, arguing that the deal favors Wall Street creditors at the expense of residents in Puerto Rico.”

HOT CLICK — The Hamilton Project at Brookings has a new report out on the Great Recession and fighting the next downturn:

LIBOR SUITS REINSTATED — WSJ’s Nicole Hong: “In a setback for some of the world’s largest financial institutions, a U.S. appeals court … reinstated the private antitrust lawsuits filed against 16 banks for allegedly rigging Libor interest rates. The ruling from the Court of Appeals for the Second Circuit reverses a lower court’s decision from 2013, in which U.S. District Judge Naomi Buchwald dismissed the claims because she said the banks’ alleged conduct didn’t violate federal antitrust laws.

“The lawsuits accuse 16 major banks — including J.P. Morgan Chase & Co.,Bank of America Corp. andCitigroup Inc. — of collusion in manipulating the London interbank offered rate, or Libor, to the detriment of the banks’ customers. The plaintiffs, who owned various financial instruments that were affected by Libor, claim the returns on their investments were depressed by the banks’ alleged collusion. The lawsuits were filed by several groups of plaintiffs, including the local governments of cities such as Baltimore, San Diego and Houston”

TRIBUNE REJECTS GANNETT AGAIN — NYT’s Leslie Picker: “The publisher of The Chicago Tribune and The Los Angeles Times has rejected both of Gannett’s takeover proposals, the latest valued at nearly double the price of Tribune’s stock before news of their potential combination first surfaced in April. … On Monday, in rejecting that latest bid, Tribune Publishing raised the pressure, saying it would issue almost five million shares to an investor who has agreed to side with the chairman, Michael W. Ferro Jr., on major issues. …

“Separately, a firm that is vital in wrangling shareholder votes rebutted Gannett’s takeover efforts by encouraging Tribune Publishing investors to vote in favor of its board. Gannett responded on Monday by saying it needed to review whether to proceed with the offer after its shareholders meeting next week. In other words, Gannett could very well choose to walk away.”

SWIFT RESPONDS TO CYBER THEFTS — FT’s Martin Arnold: “The head of Swift will on Tuesday present a plan to fight back against a wave of recent cyber thefts at members of the global bank payment messaging network. In the wake of the discovery of three cases of theft over the network since the beginning of last year, Gottfried Leibbrandt, chief executive, will announce plans to share information, beef up fraud detection and improve security.

“‘Cyber risk is big; there will be more cyber attacks,’ he is due to warn a conference in Brussels, raising concerns about the financial system’s continued vulnerability to hackers. The non-profit co-operative, which processes 25m messages a day for billions of dollars’ worth of transfers, has faced concern about its vulnerability after cyber criminals made off with almost $100m from the Bangladeshi central bank in February”

CLINTON SURROGATES TO HIT TRUMP BIZ RECORD — WP’s Abby Phillip: “An army of Hillary Clinton’s surrogates in battleground states will blast Donald Trump on Tuesday over his past statements about the housing market and his business record … The coordinated push is the first of their efforts to frame the likely Republican nominee in the minds of swing voters even while Clinton continues to contest the Democratic primary against Bernie Sanders.

“About a dozen surrogates and local elected officials in Ohio, Virginia, Pennsylvania, Florida, New Hampshire, Iowa, Colorado, Nevada and elsewhere will host calls, events and release statements focused on Trump’s response to the housing crisis that precipitated the economic recession. Sen. Tim Kaine (D-Va.) and Rep. Tim Ryan (D-Ohio), will be engaged in the efforts and Ryan will host a conference call with reporters at noon Tuesday to hammer home the message”

DAILY LONG READ — Fascinating Washington Post piece on China’s “Great Firewall” of Internet censorship and why it’s not going anywhere.


JAMIE DIMON ON DETROIT — JPMorganChase CEO Jamie Dimon writes in Black Enterprise: “Detroit has established itself as a city that welcomes and encourages business investment and wants all residents to participate in its recovery. It’s a good time to be an entrepreneur in Detroit. Helping small businesses grow is one of the many ways JPMorgan Chase’s $100 million investment is supporting the city’s comeback.”

FSR LAUNCHES 2016 PRESIDENTIAL FOCUS SERIES — Per release going out this a.m.: “In the lead up to the 2016 Republican and Democratic national conventions, the Financial Services Roundtable (FSR) today launched its 2016 Presidential Focus Series, an advocacy initiative to highlight consumer issues on which the presidential candidates should focus as they campaign for the Presidency.

“Each week leading up to the conventions, FSR will highlight a specific consumer issue to raise awareness, educate the candidates and further the conversation. … This week, FSR will focus on protecting Americans’ personal and financial data. These advocacy efforts will highlight the need for enhanced data and cyber security measures. This week, FSR joined several financial trade associations in launching an ad campaign highlighting the need for data security legislation”

POTUS Events

10:20 am || Participates in an Embassy meet and greet; Hanoi, Vietnam
10:40 am || Meets with members civil society
11:55 am || Delivers remarks; National Convention Center, Hanoi
1:55 pm || Departs Hanoi en route Ho Chi Minh City, Vietnam
3:50 pm || Arrives Ho Chi Minh City
4:20pm || Tours the Jade Pagoda; Ho Chi Minh City
5:15pm || Tours DreamPlex; DreamPlex Coworking Space; Ho Chi Minh City
5:45 pm || Delivers remarks; DreamPlex Coworking Space

All times Indochina Time, which is 11 hours ahead of U.S. Eastern

Floor Action

The House returns at 10 a.m. First votes expected: 2:15-3:15 p.m. Last votes expected: 5:30-6:30 p.m. The Senate is back at 10 a.m.