Krebs Daily Briefing 28 April 2016

Thomas L. Krebs, Securities Litigation, Regulation and Compliance Attorney Lawyer (c)2014 Brandon L. Blankenship
Thomas L. Krebs


Air strikes hit Aleppo hospital, at least 27 killed: Observatory

Air strikes hit a hospital in a rebel-held area of Syria’s Aleppo and killed at least 27 people, including three children and the city’s last pediatrician, the Syrian Observatory for Human Rights said on Thursday. A new wave of aerial bombing on Thursday on rebel-held districts of the city killed at least 30 more civilians, a rescue worker said. The Observatory put the toll at least 20. In government-held areas, rebel mortar shelling killed at least 14 people, the Britain-based Observatory and Syria’s state news agency SANA reported. Escalating violence in Aleppo is pushing people living there to the brink of a humanitarian disaster, the International Committee of the Red Cross (ICRC) said in Geneva. “Wherever you are, you hear explosions of mortars, shelling and planes flying over,” Valter Gros, who heads the ICRC office there, was quoted as saying in the statement. “There is no neighborhood of the city that hasn’t been hit. People are living on the edge. Everyone here fears for their lives and nobody knows what is coming next,” he said. Aleppo has been the epicenter of a military escalation that has helped to undermine U.N.-led peace talks in recent weeks. A cessation of hostilities agreement has unraveled and fighting has resumed on numerous fronts in western Syria.


Obama administration vows to veto House resolution to kill DOL fiduciary rule

President Barack Obama will veto a House resolution designed to kill a Labor Department rule to raise investment-advice standards for retirement accounts, the White House said Wednesday. The resolution is expected to come to the floor for a vote by the full House later this week after being approved April 21 on a party-line vote in the House Education and the Workforce Committee. The rule-change requires financial advisers to act in the best interests of their clients in 401(k), individual retirement accounts and other qualified plans. “It is essential that these critical protections go into effect,” the Office of Management and Budget said in a statement. “If the president were presented with [the resolution], he would veto the bill.” The OMB said the regulation would protect investors from conflicted advice that results in their purchasing high-fee investment products that erode their savings. It also said that the rule had been “streamlined to reduce the compliance burden and ensure continued access to advice.”

Financial industry groups sharply disagreed and supported the resolution in letters sent to Congress on Tuesday and Wednesday. Compliance “will be extremely complicated and expensive, resulting in increased consumer costs that will limit the services available to many modest-income investors,” eight industry interest groups wrote in a letter on Wednesday. “We strongly encourage Congress to use its authority to ensure the regulation, which includes a 208-page ‘definition of fiduciary,’ will not have an adverse impact on retirement savers.” The letter was signed by the Financial Services Institute, the Securities Industry and Financial Markets Association, the Financial Services Roundtable and the U.S. Chamber of Commerce among others. In a separate letter on Tuesday, the Investment Company Institute, which represents the mutual fund industry, said that the changes DOL made didn’t go far enough. “While the Department’s final rule reflects a number of modifications, the basic structure of the proposed rule remains intact,” Paul Schott Stevens, ICI president and CEO wrote. “Like the proposed rule, the final rule imposes significant new liability through a complicated, back-door regulatory regime that will have the effect of limiting available advice options for many savers.” The resolution is being advanced under the Congressional Review Act, which gives Congress 60 days after the release of a final rule to kill it. Supporters would have to garner two-thirds majorities in the House and Senate to overturn a veto.


Cyber Attacks on Small Businesses on the Rise

More than ever before, cyber crooks are targeting small businesses, law enforcement, members of Congress, and top cybersecurity experts say. It’s not just the blue chip companies or governments that are under fire. It’s now small mom-and-pop businesses of all stripes — retail shops, leisure activity businesses, hotels, health clinics, even colleges are getting hammered by cyber criminals. And it’s pushing many entrepreneurs to the verge of bankruptcy. Small business cybersecurity is now a top priority of the House Committee on Small Business, which conducted hearings on the dangers of cyber-attacks on small businesses last week. Cybersecurity firm Symantec now says that cyberthieves have been increasingly targeting small businesses over the last four years. Cyber hackers view small businesses as a soft, easy mark versus big blue chip companies which have ramped up their cyber firewalls, said Sian John, a chief strategist at Symantec. “The owners, employees and customers of America’s 28 million small businesses need to have confidence that their data is secure,” said House Small Business Committee Chairman Steve Chabot (R-OH) in a statement. “I think it is fair to say that confidence has been shaken in recent years with the cyber-attacks on the IRS, the State Department, OPM [Office of Personnel Management], and even the White House. Between foreign hackers from countries like China and Russia and domestic identity thieves, the federal government has a target on its back that seems to get larger by the day.” Almost half of cyber-attacks worldwide, 43%, last year were against small businesses with less than 250 workers, Symantec reports. The FBI reported last summer that more than 7,000 U.S. companies of all sizes were victims of cyber hacks via phishing email scams as of late 2013, the latest data available, with losses of more than $740 million.  The cyber crooks steal small business information to do things like rob bank accounts via wire transfers; steal customers’ personal identity information; file for fraudulent tax refunds; commit health insurance or Medicare fraud; or even steal intellectual property. The criminals can also hijack a small business’s website to cyberhack other small businesses. “There are probably 20 different ways a bad guy can get into a website” run by a small business, Scott Mann, CEO of Orlando-based Highforge Solutions, has said. More:

How Americans Blow $1.7 Trillion in Retirement Savings

You’re traveling across the desert, feeling parched and looking dirty. You take a long drink of water from your canteen, then wash your face with the rest. As you’ll discover before you die of thirst in a day or two, you just made a huge mistake. Outside of cartoons, nobody is this stupid. But people make the same kind of mistake all the time, putting their current happiness (vacations, flat screens, new cars) way above their future well-being. Economists call this kind of irrationality “present bias.” And according to a National Bureau of Economic Research study, it and other biases are holding back millions of Americans from saving enough money for that ultimate future need: retirement. How much money? Try $1.7 trillion on for size. That’s 12 percent of the $14 trillion in U.S. individual retirement and 401(k) accounts. Another error economists worry about is “exponential-growth bias.” This is the failure to realize how savings compound over time. Save $100 at a 7 percent rate of return, and you’ll have only an extra $7 next year. But the gains compound year after year. In 10 years, your investment will nearly double and be growing at $14 a year. In another 10 years, it will almost double again and be yielding $27 a year. Some people have a hard time wrapping their heads around this concept. They think of money as growing in a linear way, by more or less the same amount each year. And that makes saving and investing seem much less attractive than the trip to Cancun or the 40-inch television. The researchers looked at survey data to try to figure out how many people are afflicted by more serious versions of these two biases. To find their “exponential-growth bias,” people were asked to predict how much an asset would increase over time. About seven in 10 underestimated its growth.


Justices appear to lean in McDonnell’s favor

Former Virginia Gov. Bob McDonnell had a surprisingly strong outing at the Supreme Court on Wednesday, as the majority of the court appeared to lean in the direction of overturning the corruption convictions a jury returned against him two years ago.  Two members of the court’s liberal wing — Justices Stephen Breyer and Elena Kagan — expressed serious concerns that the government’s stance could expose public officials to prosecution for all kinds of acts routinely performed for political donors. Breyer appeared particularly troubled that upholding the convictions would shift too much power to federal prosecutors. “My problem is criminal law as the weapon to cure it,” Breyer said. “This is a very basic separation of powers problem for me.” Breyer said the government’s position would open public officials to the possibility of prosecution every time they are taken to lunch by a constituent and then makes an inquiry on their behalf.  “If that’s going to criminalize that behavior, I’m not buying into that, I don’t think,” he said. “That is a recipe for the Department of Justice and prosecutors to wield enormous power over elected officials.” With three conservative justices on the shorthanded court expressing similar worries, McDonnell seemed to stand a good chance of getting a ruling in his favor and avoiding the two-year prison sentence he is facing. Justice Anthony Kennedy said he didn’t think relying on juries to separate the cases of corruption from those that aren’t was much of a safeguard. “You’re telling the senators, the officials who are having a lunch, ‘Don’t worry. A jury has to be convinced beyond a reasonable doubt and that’s tough.’ That’s your answer?” Kennedy said skeptically. A jury convicted McDonnell on 11 corruption-related counts in 2014 after he and his wife took more than $175,000 in gifts and loans from a Virginia businessman seeking state studies of a tobacco-based dietary supplement. The charges included “honest services” fraud, extortion and conspiracy. The government said McDonnell’s largesse from businessman Jonnie Williams was part of a corrupt deal to advance the businessman’s interests. More:

Ex-House Speaker Hastert gets 15 months, admits sex abuse

Former U.S. House Speaker Dennis Hastert, once one of the country’s most powerful politicians, was sentenced on Wednesday to 15 months in federal prison for a financial crime related to sexual abuse of high school wrestlers he coached decades ago. U.S. District Court Judge Thomas Durkin called Hastert a serial sex abuser in handing down the sentence, which was longer than the zero to six months recommended by federal prosecutors. Durkin said the sentence would have been even longer if it weren’t for Hastert’s age, 74, and poor health. Frail and clinging to a walker, Hastert apologized for sexually abusing boys when he was a teacher and coach in his hometown of Yorkville. “I’m sorry to those I hurt and misled. I wanted to apologize for the boys I mistreated,” Hastert told Durkin at the two-hour sentencing hearing in federal court in Chicago. The judge asked him if he acknowledged sexual abuse of his victims and Hastert said he did. Hastert, the longest-serving Republican House speaker in history and a successful international lobbyist who was earning $75,000 a month, pleaded guilty last October to the crime of structuring. That involves withdrawing a large sum of money in small increments to avoid detection. He needed the cash after he reached a secret agreement with one of his five sexual abuse victims to pay him $3.5 million in compensation for pain and suffering. The judge said that even though Hastert could not be charged with sex abuse because the statute of limitations had run out, he could take the conduct into consideration at sentencing. “Some conduct is unforgivable no matter how old it is. The abuse was 40 years ago but the damage lasts today,” Durkin said. Hastert’s defense had asked for a probation-only sentence, arguing that his shame and humiliation were punishment enough. His portrait has been removed from the Capitol, the seat of the U.S. Congress, and his alma mater Wheaton College stripped his name from a public policy center. “Nothing is more stunning than having the words ‘serial child molester’ and ‘speaker of the house’ in the same sentence,” Durkin acknowledged. But he said that an extremely aggravating factor in the sentencing was that Hastert lied to federal agents about the money and falsely claimed that the victim was extorting him. He said Hastert must serve two years of probation and go through sex-offender treatment after release, and also pay a $250,000 fine. More:

Donald Trump, Laying Out Foreign Policy, Promises Coherence

WASHINGTON — Donald J. Trump, fresh from a string of resounding primary victories in Eastern states, promised a foreign policy on Wednesday that he said would put “America first,” castigating President Obama and Hillary Clinton for what he described as Middle East missteps that had disillusioned the nation’s allies and emboldened its rivals. Mr. Trump, the front-runner for the Republican presidential nomination, pledged a major buildup of the military, the swift destruction of the Islamic State and the rejection of trade deals and other agreements that he said tied the nation’s hands. He also pointedly rejected the nation-building of the George W. Bush administration, and reminded his audience that he had opposed the Iraq war. “America is going to be strong again; America is going to be great again; it’s going to be a friend again,” Mr. Trump declared. “We’re going to finally have a coherent foreign policy, based on American interests and the shared interests of our allies.” “The world must know that we do not go abroad in search of enemies, that we are always happy when old enemies become friends and when old friends become allies,” he said. “That’s what we want: We want to bring peace to the world.” Speaking soberly, and reading from a teleprompter in the first foreign-policy address of his campaign, Mr. Trump broke little new ground in terms of policies or programs. He declined, for example, to give details on his plans to destroy the Islamic State to avoid tipping the military’s hand,. saying only that “they will be gone quickly.” But he elaborated on his recent demand that America’s allies bear a greater financial burden for their own security. As president, he said, he would hold summit meetings in Europe and Asia to overhaul NATO and rebalance nuclear security arrangements with Japan and South Korea. (He did not repeat a statement he made to The New York Times that those countries should consider acquiring their own nuclear weapons.) More:

The Cry-Bully

On May 4, 2009, @realDonaldTrump toddled out into our world. Back then, Twitter was still seen as a buggy curiosity making grandiose promises that no one took seriously. So too was Donald Trump. When the two met, there were no sparks, at least none right away. @realDonaldTrump emitted two polite toot-toots of self-promotion, and then rested for four days. “Be sure to tune in and watch Donald Trump on Late Night with David Letterman as he presents the Top Ten List tonight!” “Donald Trump will be appearing on The View tomorrow morning to discuss Celebrity Apprentice and his new book Think Like a Champion!” Not until about a week later—May 12, to be exact—did the world get a glimpse of what @realDonaldTrump would eventually turn into. That’s when it tweeted: “My persona will never be that of a wallflower – I’d rather build walls than cling to them” –Donald J. Trump This was a new one: using your personal Twitter feed to quote yourself, and then actually signing it, lest there be any confusion about the source. You could chalk it up to one of those misunderstandings we all have when adopting a new technology. Or you could see it as a flash of vision. While many of us were still making fun of Twitter for being a place where bores talked about their lunches, Trump saw it as something more. He saw it as a way to erect new monuments to Donald J. Trump. Today, @realDonaldTrump is a force, a newsmaker, an agitator, an American political phenomenon that combines the high profile of a presidential candidate with the reach and velocity of social media. It has more than 7.5 million followers. It has tweeted more than 31,000 times. It is a thing. But who is @realDonaldTrump really? And what can we learn about the real Donald Trump from realDonaldTrump? To find out, I scrubbed Twitter for every tweet I could pull from its seven-year feed—an imperfect compendium, but more than 13,000 in total—and spent three full days in the company of @realDonaldTrump. Day and night. Thousands of boasts and insults; all the crowing, cajoling, whining and threatening; every single “Sad!” The experience was by turns amusing, exhausting, infuriating, compelling and sometimes even weirdly poignant.

Cruz names Fiorina as VP running mate

Ted Cruz announced Wednesday that Carly Fiorina will be his vice presidential nominee if he’s the Republican Party’s pick for president. If nominated, “I will run on a ticket with my vice-presidential nominee, Carly Fiorina,” the Texas senator said before the crowd began chanting “Carly.” Fiorina, a former Hewlett-Packard CEO, has been among Cruz’s most loyal and active surrogates since she ended her own 2016 GOP presidential bid after a poor finish in New Hampshire in February. The announcement, which was teased early Wednesday morning, comes the day after Cruz suffered a drubbing at the hands of Donald Trump in five northeastern primaries — losses that mathematically eliminated Cruz from getting the 1,237 delegates he’d need to clinch the GOP nomination. Cruz’s hopes now rest in a contested convention this summer in Cleveland, where the Texas senator would hope to stop Trump on the first ballot and then win in subsequent rounds of voting thanks to support from the loyal delegates his campaign has assiduously courted. The Cruz campaign deliberated over whether to pick Fiorina for the last two weeks, according to one person familiar with the move. It has polled the potential ticket, examining it for its prospective strengths and weaknesses. The hope within the campaign is that Fiorina will help Cruz in California, which will award 172 delegates on June 7. Fiorina is scheduled to give the keynote address at this weekend’s California Republican Party convention, speaking hours after Cruz takes the stage. The move comes at a time of growing desperation within Cruz circles. Some in the campaign worry that the Texas senator will lose Indiana on Tuesday and lose other key states in May, paving the way for a Trump nomination. Cruz is campaigning fervently this week in Indiana, where primary rules award the winner most of the state’s 57 delegates. With Trump’s victories Tuesday night, and with most of Pennsylvania’s 54 unbound delegates leaning in Trump’s direction, Cruz needs success in Indiana and California if he has any hope of stopping Trump. The most recent Indiana polls show Trump polling around 40 percent, between 5 and 8 percentage points ahead of Cruz. Those polls were conducted before Ohio Gov. John Kasich — who’s polling around 20 percent in the state — announced that he would no longer actively campaign in Indiana, in exchange for Cruz agreeing to no longer actively campaign in Oregon and New Mexico.

Boehner: Cruz is ‘Lucifer in the flesh’

When it comes to Texas Sen. Ted Cruz, even a few months’ time out of Congress has done little to lessen former Speaker John Boehner’s contempt for his former Capitol Hill colleague. “Lucifer in the flesh,” Boehner told an audience at Stanford on Wednesday night, according to the Stanford Daily. “I have Democrat friends and Republican friends. I get along with almost everyone, but I have never worked with a more miserable son of a bitch in my life.” In fact, Wednesday night was not the first occasion that Boehner has compared Cruz to “Lucifer,” using the epithet last month during a question-and-answer session with reporters at the Futures Industry Association conference in Boca Raton, Florida.

As far as Donald Trump goes, Boehner remarked that he had golfed with Trump for years and that the two are “texting buddies.” On fellow Ohioan John Kasich, Boehner was magnanimous. The governor “requires more effort on my behalf than all my other friends … but he’s still my friend, and I love him,” Boehner said, according to the report. On the Democratic side of the race, Boehner said that while Hillary Clinton would win the party’s nomination, Bernie Sanders is a likable guy and the most honest politician in the race. He also apparently impersonated the former secretary of state, saying, “Oh I’m a woman, vote for me,” while reportedly later noting her accomplishments. Boehner’s comments also included a reference to the ongoing FBI investigation into Clinton’s use of a private email server while she was at the State Department, speculating on what might happen if the scandal widens. “Don’t be shocked … if two weeks before the convention, here comes Joe Biden parachuting in and Barack Obama fanning the flames to make it all happen,” the former speaker said.

Looting the Pension Funds

n the final months of 2011, almost two years before the city of Detroit would shock America by declaring bankruptcy in the face of what it claimed were insurmountable pension costs, the state of Rhode Island took bold action to avert what it called its own looming pension crisis. Led by its newly elected treasurer, Gina Raimondo – an ostentatiously ambitious 42-year-old Rhodes scholar and former venture capitalist – the state declared war on public pensions, ramming through an ingenious new law slashing benefits of state employees with a speed and ferocity seldom before seen by any local government. Called the Rhode Island Retirement Security Act of 2011, her plan would later be hailed as the most comprehensive pension reform ever implemented. The rap was so convincing at first that the overwhelmed local burghers of her little petri-dish state didn’t even know how to react. “She’s Yale, Harvard, Oxford – she worked on Wall Street,” says Paul Doughty, the current president of the Providence firefighters union. “Nobody wanted to be the first to raise his hand and admit he didn’t know what the fuck she was talking about.” Soon she was being talked about as a probable candidate for Rhode Island’s 2014 gubernatorial race. By 2013, Raimondo had raised more than $2 million, a staggering sum for a still-undeclared candidate in a thimble-size state. Donors from Wall Street firms like Goldman Sachs, Bain Capital and JPMorgan Chase showered her with money, with more than $247,000 coming from New York contributors alone. A shadowy organization called EngageRI, a public-advocacy group of the 501(c)4 type whose donors were shielded from public scrutiny by the infamous Citizens United decision, spent $740,000 promoting Raimondo’s ideas. Within Rhode Island, there began to be whispers that Raimondo had her sights on the presidency. Even former Obama right hand and Chicago mayor Rahm Emanuel pointed to Rhode Island as an example to be followed in curing pension woes. What few people knew at the time was that Raimondo’s “tool kit” wasn’t just meant for local consumption. The dynamic young Rhodes scholar was allowing her state to be used as a test case for the rest of the country, at the behest of powerful out-of-state financiers with dreams of pushing pension reform down the throats of taxpayers and public workers from coast to coast. One of her key supporters was billionaire former Enron executive John Arnold – a dickishly ubiquitous young right-wing kingmaker with clear designs on becoming the next generation’s Koch brothers, and who for years had been funding a nationwide campaign to slash benefits for public workers. Nor did anyone know that part of Raimondo’s strategy for saving money involved handing more than $1 billion – 14 percent of the state fund – to hedge funds, including a trio of well-known New York-based funds: Dan Loeb’s Third Point Capital was given $66 million, Ken Garschina’s Mason Capital got $64 million and $70 million went to Paul Singer’s Elliott Management.


Drug charges against Chief Justice Roy Moore’s son dropped

Drug charges against Caleb Moore, the son of Alabama Chief Justice Roy Moore, were dropped several months ago after he agreed to enter a pre-trial diversion program with the Pike County District Attorney’s Office, court records show. Moore in January had pleaded not guilty and waived arraignment on charges in an indictment for unlawful possession of a controlled substance (alprazolam), a felony, and possession of marijuana second degree, a misdemeanor. Moore’s jury trial had been set for March 2 before Circuit Judge Jeffery W. Kelley, according to court records. But court records show that on Feb. 1 the charges were nolle prossed – or dropped – after Caleb Moore enrolled in a pretrial diversion program of the district attorney, according to an order from Kelley. Pre-trial diversion programs are not unusual and generally require a non-violent offender to undergo, with supervision, certain drug treatment programs in order to have their charges dismissed. Pike County District Attorney Tom Anderson, in an email to, explained their decision to place Moore into pre-trial diversion. “As Mr. Moore’s case proceeded through grand jury, the discovery process and trial preparation, it was determined that this constructive possession case would be difficult to successfully prosecute to (a) guilty verdict,” Anderson wrote. “Due to the fact that four persons were present with Mr. Moore at the time and location of arrest, the controlled substance being in the console of a vehicle not owned or driven by him and additional circumstances ascertained during trial preparation, it became evident that disposition short of jury trial was likely necessary.” “After careful consideration by myself and another Assistant District Attorney, Mr. Moore was authorized to be admitted into a Pretrial Diversion Program with the attendant requirement of rehabilitative treatment and frequent drug testing,” Anderson stated. Caleb Moore entered the program several months ago, Anderson said. “At present, unless terms thereof become violated, there is no present intention to re-file this matter with the court as pending,” he stated.  An attorney for Caleb Moore had not yet responded to a request for comment prior to publication of this story. More:

Moore: Judicial complaints are politically motivated

Alabama Chief Justice Roy Moore hasn’t violated judicial ethics and the complaints filed against him saying otherwise are politically motivated, an attorney representing Moore said at a news conference Wednesday afternoon. Mat Staver, an attorney who rose to some level of fame following his representation of Kentucky probate clerk Kim Davis, told a group of reporters gathered in the rotunda of the Alabama Judicial Building that Moore’s directions to state probate judges that they stop issuing same-sex marriage licenses was not in defiance of the United States’ Supreme Court. Instead, Staver said, Moore’s orders provided direction in a time of confusion, since the nation’s highest court didn’t address Alabama’s same-sex marriage ban specifically. “(Moore) never instructed the judges to defy a federal court,” Staver said. “He provided guidance. This case is not about defying the federal courts. It’s about a disagreement between state and federal courts on an issue.” Moore, and others, has made the argument before that the Supreme Court’s ruling last summer that legalized same-sex marriage applied only to the states listed in the court filing. However, that argument has been roundly dismissed by legal scholars, attorneys and even some of Moore’s fellow justices on the Alabama Supreme Court. Justice Greg Shaw called the notion that Supreme Court’s Obergefell ruling applied only to the states involved in the case “silly.” Moore insisted Wednesday that his hastily called news conference was merely an opportunity for him to address the many complaints against him and not an indication that charges from the Judicial Inquiry Commission were forthcoming. However, a source familiar with Moore’s case said Tuesday that the JIC had completed its review and was in the process of bringing charges against the chief justice. It would be the second time such charges were brought – the first coming in 2003 when Moore defied a federal court order to remove a large Ten Commandments statue from the judicial building. A complaint filed by Southern Poverty Law Center president Richard Cohen against Moore appears to be the primary focus of the JIC charges, according to the source. Cohen’s complaint was several pages long and provided exhibits detailing specific instances in which Cohen believed Moore violated certain canons of judicial ethics. Moore and Staver dismissed Cohen’s complaint as “politically motivated” and quickly tied the SPLC to a “known transvestite” named Ambrosia Starling. Moore went a step farther while discussing Starling’s officiating of a mock same-sex wedding on the judicial building steps, saying that “transsexualism is a known mental illness.”

Alabama city makes bathroom access by gender identity a crime

An Alabama city appears to be the first in the country to specify criminal penalties for violators of an ordinance requiring people to use bathrooms that match the gender on their birth certificates, civil rights groups said on Wednesday. The law passed on Tuesday by the city council in Oxford, located about 60 miles east of Birmingham, carries a possible punishment of a $500 fine or six months in jail. The measure raises the stakes in the U.S. bathroom wars that have caused fierce debate among state lawmakers, school officials and Republican presidential candidates. It goes further than a law enacted last month in North Carolina – which has been boycotted by businesses, entertainers and government workers – since it became the first state to bar transgender people from using bathrooms that correspond with their gender identity. North Carolina’s law applies to restrooms and locker rooms in government-owned facilities and schools. The Oxford ordinance also includes bathrooms in private businesses and explicitly makes violating the provision a crime, the Human Rights Campaign said. “This is a very concerning expansion of the ways in which trans people are going to be and have been policed,” said Chase Strangio, a staff attorney with the American Civil Liberties Union’s LGBT Project. “It’s essentially just criminalizing trans existence.” Steven Waits, president of the Oxford City Council, said the measure was a response to complaints from residents after retailer Target last week said transgender people and customers could use store bathrooms that matched the gender with which they identify, the Anniston Star reported. Waits said the council adopted the law “not out of concerns for the 0.3 percent of the population who identify as transgender,” but “to protect our women and children,” according to the newspaper. Waits did not reply to a request for comment from Reuters.


Alabama House committee approves new plan for BP funds

The budget committee in the Alabama House of Representatives today approved a plan to split money from a $1 billion BP oil spill settlement between debt payments and road projects in Mobile and Baldwin counties. The plan would also free up $55 million in one-time funding for the Alabama Medicaid Agency, said the sponsor, Rep. Steve Clouse, R-Ozark. The bill could be considered in the House as early as Thursday. It would also have to pass the Senate, and only three days remain in the legislative session after today. The bill is the latest effort to resolve a dispute between lawmakers over how to use the $1 billion BP is scheduled to pay the state over the next 18 years to compensate for economic damages from the 2010 Deepwater Horizon disaster. The plan calls for a bond issue and for using the annual BP payments to pay the debt. About $448 million would go to the Alabama Trust Fund as repayments for transfers used to prop up the General Fund over the last six or seven years. About $191 million would go to Mobile and Baldwin counties for road projects. Lawmakers from the coastal counties say two projects are high priorities — improvements to U.S. 98 between Mobile and the Mississippi line and a connector between Interstate 65 and Interstate 10 to extend the Baldwin Beach Express, which runs to Orange Beach. Rep. Randy Davis, R-Daphne, and Sen. Bill Hightower, R-Mobile, today called Clouse’s bill a good compromise. The bill would clear the way to appropriate $55 million in the fiscal year 2017 budget for Medicaid, Clouse said. The Legislature appropriated $700 million from the General Fund for Medicaid for next year, $85 million short of what the agency said it needed to maintain services. The $55 million would cover about two-thirds of that difference. Clouse and some other lawmakers have wanted to use the BP windfall to remove debts owed to the Alabama Trust Fund, the fund set up in the state Constitution for royalties and revenues from natural gas wells in state waters off the Gulf Coast. The state has tapped the ATF for money to prop up the General Fund over the last seven years. The state withdrew $162 million from the Rainy Day Account in the Alabama Trust Fund in fiscal year 2010 and is constitutionally bound to repay that by 2020. Another $437 million was withdrawn from the ATF to support the budget during fiscal years 2013-2015. About $400 million of that is still due to be repaid. Clouse’s plan would repay the $162 million that’s constitutionally required, plus $287 million of the remaining debt.

Wall Built at Governor’s Beach Mansion Ordered to be Removed

The Baldwin County Commission has told Gov. Robert Bentley that he must remove a new wall just constructed as part of the re-building of the so-called “Governor’s Mansion at the Beach.” The commission says the wall blocks public access to the beach and intrudes on county right-of-way. The governor last year diverted $1.8 million from an early partial settlement of the BP oil spill to refurbish the mansion. State Auditor Jim Zeigler, a strong critic of the mansion project, says the improper wall is “just an example of the mistakes that happen when the Bentley administration is not accountable to anyone.” “The governor rammed this project through with no notice to the public.  It was a done deal before the public or the Baldwin County officials knew anything about it.” “The rush was so the governor and his guests could use the mansion this summer season.  A rush job was done because the governor lost his personal beach properties in his divorce last year.” “The governor ordered that the refurbishment be finished by the end of May so that he and his guests could use it,” Zeigler said. “This was a bad use of money available to the state when state parks are closed and needs of Baldwin County residents that were affected by the BP oil spill have not been met.”

RSA is in Center of a Political Storm

The State of Alabama does not have enough money. There is never enough money to do all of the things that legislators want to do. Poverty, joblessness, declining wages, changing workforce needs, the macro economy are the major causes of Alabama’s failure to bring in enough dollars to meet the needs of Medicaid, the State prisons, and other State agencies. A more specific concern for many legislators is the high cost of maintaining Alabama’s commitment to it’s current and future State retirees. To that purpose last year the legislature appointed a Joint Committee on Public Pensions. They have been studying why Alabama’s Retirement Systems of Alabama (RSA) costs the state what it costs and how the State can reform RSA so that it costs the state less in the future. That committee is co-chaired by State Representative Lynn Greer (R-Rogersville). Chairman Greer and the Alabama Policy Institute’s Katherine Green Robertson wrote a column on Monday outlining the case for prison reform. The pair warn that the Alabama pension system faces significant funding challenges and that, “Alabama’s pension costs have doubled over the last ten years, despite the fact that the legislature has never missed paying the steadily increasing annual required contribution. In the past, this payment was made with little fanfare, but ongoing budgetary woes have demanded a higher degree of scrutiny.” Rep. Greer and Vice President Robertson wrote, “The haze of misinformation surrounding the debate often obscures the reality: the State has at least a $15 billion funding gap that will not be closed until 2050, at the earliest. Over the next twenty-five years, the projected amount of the State’s yearly contribution–the cost of paying for new benefits earned and a portion of the existing unfunded liability–as presented on a bar graph looks like a steep staircase, topping out at over $2 billion in 2044. That staircase only leads to full funding by 2050 if the State does not accrue any additional unfunded liabilities between now and then.” The pair cite a recent report from the PEW Charitable Trusts estimates that claims that if Alabama’s pension investments return 6.25 percent rather than 8 percent over the next 40 years, Alabama’s funded ratio would dip below 60 percent while the annual contribution would top out at $5 billion around 2050. By comparison, Alabama only collects around $10 billion per year in State taxes. More:



GUEST COMMENTARY: The myth about the pension crisis in Alabama

Much ado has been made recently about a public pension crisis in Alabama and the need for reform. The groups and legislators who are clamoring for reform always neglect to mention two critically important facts: the Legislature has already reformed Alabama’s public pensions and there is no pension crisis in Alabama. First, major pension reforms have already been enacted. In 2011 and 2012, the Alabama Legislature passed pension reform legislation designed to address the very issues that are now being touted as causing a crisis. These reforms were comprehensive and impacted current members (repeal of DROP and increasing employee contributions) and new members (increasing the retirement age and decreasing the benefits). These pension reforms tied with Pennsylvania’s as the most extensive in the nation and significantly reduced the state’s cost of benefits for Alabama’s education and public employees. The RSA is not protecting the status quo by objecting to another major overhaul of the system, but is instead trying to allow the reforms that were so recently enacted to continue to work.

Second, manufacturers of the pension crisis emphasize a large unfunded liability ($15 billion) and increasing employer contributions as evidence of the crisis. Yes, $15 billion is a large number, but it represents pension benefit obligations to be paid in the future over a long period of time, much like a mortgage. The money received from the state and RSA’s investment income is used to make the “mortgage payment” on this obligation and the unfunded liability is being systematically paid off.

The RSA has some other big numbers that can put the unfunded liability into context: $15 billion is the amount of only five years of benefit payments made to RSA members; the RSA paid out roughly $3.1 billion in benefits in fiscal year 2015. The RSA has generated $15.3 billion in investment returns since 2010 and as of September 30, 2015, had approximately $32 billion in assets, an increase of 28% since 2010. What other state entity generates that much income? Or holds that much in assets? Or pays as much into the Alabama economy? At a time when prisons and Medicaid need hundreds of millions more each year, the state’s contribution to the RSA has remained stable or declined. In fact, the total amount the RSA receives from the General Fund (an estimated $64 million) is less than the shortfall faced by Medicaid under the current General Fund budget ($85 million). In addition, RSA’s total employer contribution request for fiscal year 2017 is still below the 2009 employer contribution amount. This is not a system in crisis. Why are the groups who want more pension reform ignoring the extensive reforms that have already occurred and RSA’s good financial health? The reason is that the prior reforms do not align with those being pushed by outside special interests who have an agenda other than doing what is best for the state of Alabama, its taxpayers, education and public employees. These groups, funded by Wall Street billionaires who may stand to profit from changes, have been using the same tactics in other states to undermine public pensions in hopes of enacting reforms that will eventually shift public employees to 401k style retirement plans. This shift will not save money or decrease the unfunded liability and could in fact increase costs to the state and taxpayer and undermine the financial stability of the entire pension system. Make no mistake, those yelling “crisis and reform” are after the money! David G. Bronner is CEO of the Retirement Systems of Alabama.


Morning Money

GET READY FOR A CRUMMY GDP NUMBER — Once again the first quarter looks to be a total dud. It will be the third year in a row the U.S. economy has started the year by stalling out. And once again, many analysts believe things will pick up in the second and third quarters. Still, expect to hear plenty from Donald Trump and other GOP candidates and office holders about the sorry state of the U.S. economy after the numbers comes out at 8:30 a.m.

HFE’s Jim O’Sullivan: “We now estimate a 0.9 percent annual rate of growth in real terms, instead of 0.5 percent. The most important new information was a much-lower-than-expected merchandise trade deficit for March … As before, we forecast reacceleration in real GDP to a 2.5 percent annual rate in Q2. We believe the underlying trend is still at least 2 percent”

Pantheon’s Ian Shepherdson: “Our base case for today’s advance estimate of first quarter GDP growth is just +0.5 percent. The Atlanta Fed’s estimate is 0.6 percent, and the New York Fed is at 0.8 percent, though the latter does not reflect the startling drop in the March trade deficit. … Whatever prints this morning, though, the key point here is that the GDP report will show that the economy performed poorly in the first quarter, following growth of just 1.4 percent in the fourth quarter of last year.

“At the end of last year most forecasters, ourselves included, hoped for a clear rebound in the first quarter. If we wanted to put a positive spin on the data, we’d argue that even a cursory glance at the extent of the seasonal adjustment problems strongly suggests that the second quarter will be much better.”

FIRST LOOK: WHY YAHOO WAS ALWAYS DOOMED — New Bloomberg Businesssweek cover: “Yahoo’s $8 Billion Black Hole: Marissa Mayer’s turnaround plan may have been doomed from the start” by Max Chafkin and Brian Womack: “If you go by one popular analysis of the company’s valuation, Yahoo is worth approximately -$8 billion. The minus sign isn’t a typo. A more charitable analysis, where one imagines Yahoo selling its stock and paying the full corporate tax rate, is that its operating business might be worth $6 billion.”

THE MEDIA ISSUE: POLITICO MAGAZINE ONLINE TODAY — POLITICO Magazine’s MEDIA ISSUE is out just in time for WHCD festivities! Don’t miss this sweeping look at the press’ role in the rise of GOP frontrunner Donald Trump — from NYC tabloid writers who made Trump a celebrity, to the complicity of cable news, to on-the-ground reporters riding the Trump rollercoaster. … In this must-read issue featuring Jack Shafer, Campbell Brown, Michael Grunwald, Michael Crowley and Ben Schreckinger among many others, POLITICO Magazine asks, “Just what have we done?” or grab a copy tomorrow.

WHITE HOUSE LAUNCHES NEW STUDENT LOAN EFFORT — Via White House release: “Today, the White House is announcing new actions and highlighting the progress already made to help ensure the more than 40 million Americans with student loan debt understand their repayment options and access high-quality customer service, strong consumer protections, and targeted support to repay their student debt successfully. …

“Today’s actions build on that progress and provide a roadmap to guide and support borrowers as they seek to manage and repay their debt successfully: New Goal to Enroll 2 million More Borrowers in Plans like Pay As You Earn (PAYE). … Launch of … The CFPB is seeking comment on a new set of student loan servicing disclosures — a student loan Payback Playbook”

HEDGE FUND CRASH COMING? — FT’s Mary Childs and Stephen Foley: “One of the most powerful US hedge fund managers believes that the industry is in ‘first innings of a washout’ after a string of disastrous market calls inflicted steep losses on many funds. Daniel Loeb’s stark comments, in his first-quarter letter to investors in his fund Third Point, come as institutions such as pension funds are questioning the value of investing in hedge funds.

“The first quarter was ‘one of the most catastrophic periods of hedge fund performance that we can remember since the inception of this fund,’ in December 1996, Mr Loeb said. ‘There is no doubt that we are in the first innings of a washout in hedge funds and certain strategies.’ … Mr Loeb recounted a litany of recent woes for hedge funds. Many have been caught on the wrong side of market swings, such as those related to the Chinese economy and its currency, he pointed out.”

CRUZ GETS DESPERATE — POLITICO’s Shane Goldmacher, Katie Glueck and Alex Isenstadt: “Ted Cruz talks a lot about conservative leadership but there was nothing conservative about his desperate gambit naming Carly Fiorina as his running mate less than 24 hours after he was mathematically eliminated from winning enough delegates for the Republican nomination. …

In tapping Fiorina, the Cruz campaign hopes to shake up a hardening political narrative of Trump’s inevitability, to stem the bleeding after six straight losses, and to lift his fortunes in the coming key contests of Indiana, where the surprise announcement was held, and California, where Fiorina first planted her political roots. It was a bid for a game changing moment — and a not-so-tacit acknowledgment that, unless something significant in the current nominating game changed, Cruz was headed for defeat”

DRIVING THE DAY — House Ag subcommittee has a hearing at 10:00 a.m. on the impact of margin requirements on end-users … Deputy Treasury Secretary Sarah Bloom Raskin this afternoon “will host the Senior Leaders of the Financial and Banking Information Infrastructure Committee (FBIIC) at a meeting on cybersecurity policy” … First estimate of third quarter GDP at 8:30 a.m. expected to show growth of just 0.6 percent …

GDP CALL — Business Forward is hosting a call at 10:00 a.m. to discuss the GDP report with Commerce Department Chief Economist Dr. Ellen Hughes-Cromwick and PGIM Managing Director Ed Keon

TRUMP’S FOREIGN POLICY — This is a money-focused newsletter. We will leave the finer points of Donald Trump’s foreign policy address to others. But it’s very hard to believe it included this line: “America First will be the major and overriding theme of my administration.” It’s possible neither Trump nor the person who actually wrote the speech knows the dark history of the America First movement and its dogged efforts to keep the United States from doing anything to stop the Nazi rampage across Europe.

America First counted among its supporters the Nazi sympathizer Charles Lindbergh and the virulently anti-Semitic Father Charles Coughlin. It’s also possible the speechwriters knew about America First’s history and simply didn’t care. Which would be even worse. On the money front, the speech simply reiterated Trump’s protectionist approach to trade and vague pledges to return manufacturing jobs, something he would not be able to do. Full text of the speech:

THE BIG MONEY — Bloomberg’s Anders Melin: “NantKwest Inc., a cancer-research firm that went public last year, gave Chief Executive Officer Patrick Soon-Shiong a $147.6 million pay package for 2015, the highest reported by any company so far. Soon-Shiong’s compensation exceeds that granted Google Inc. CEO Sundar Pichai, who received $100.5 million last year to run the search-engine unit of parent Alphabet Inc. … Soon-Shiong, a co-owner of the Los Angeles Lakers basketball team, received stock options valued at $132.2 million and $15 million in restricted stock

“A medical doctor and entrepreneur, Soon-Shiong, 63, became a billionaire after selling drug companies APP Pharmaceuticals Inc. in 2008 and Abraxis BioScience Inc. in 2010. Cambridge Equities LP, an investment partnership he controls, bought 31 percent of NantKwest less than a year before its IPO and is the company’s majority shareholder. … His net worth is $9.8 billion, according to the Bloomberg Billionaires Index.”

FACEBOOK CRUSHES — WSJ’s Deepa Seetharaman: “Facebook Inc. reinforced its standing as a mobile-advertising powerhouse, nearly tripling its quarterly profit at a time when its Silicon Valley rivals are underperforming. The social network on Wednesday said advertising revenue jumped 57 percent in the first quarter to $5.2 billion from $3.3 billion. Mobile ads, which command a higher price than those shown on desktops, accounted for roughly four-fifths of that revenue. … The stronger than expected results drove Facebook shares up 8.8 percent in after-hours trading, lifting the company’s market valuation above $330 billion.

“Facebook also said its board had proposed creating a new class of nonvoting shares, designed to further cement founder and Chief Executive Mark Zuckerberg’s control over the company. The new Class C shares would have the same economic rights as other shares but wouldn’t have voting rights, allowing Facebook to distribute them to employees and through acquisitions without diluting Mr. Zuckerberg’s control”

VALEANT CEO ADMITS MISTAKES — NYT’s Katie Thomas: “The chief executive of Valeant Pharmaceuticals International, which has been harshly criticized for its practice of raising prices on old drugs, said during a tense hearing on Capitol Hill on Wednesday that the company had made ‘mistakes,’ while lawmakers accused him and others connected to Valeant of favoring profits over patients’ needs.

“‘Let me state plainly that it was a mistake to pursue, and in hindsight I regret pursuing, transactions where a central premise was a planned increase in the prices of the medicines,’ J. Michael Pearson, the chief executive, said at the hearing. … Mr. Pearson, who will soon step down as chief executive, appeared subdued and sometimes slumped in his seat as he answered questions. Some of the senators appeared unmoved by Mr. Pearson’s expression of regret.’”


YELLEN STAYS PUT — FT’s Sam Fleming: “The Fed … signalled that its concerns about global economic and financial hazards have eased since its meeting in March, even as it continues to closely watch developments overseas as well as mixed indicators at home … The central bank held rates at 0.25 per cent to 0.5 per cent .. as it noted a slowdown in US economic growth and more sluggish household spending. … The [FOMC] struck out a reference in its previous statement to international risks to the US economy, following an improvement in financial market sentiment and lessened concerns over Chinese policymaking. That suggests the door is open to a second increase in short-term interest rates in the coming months

“However, the Fed also indicated that it remained on guard for another adverse turn of events abroad. … The median expectation from Fed policymakers’ interest rate forecasts suggests the official rate will be lifted twice this year, with some analysts looking to June or July for the first of these moves and December for the second.”

Blackrock’s Rick Rieder: “There were no surprises in today’s Fed announcement, as the central bank will be on pause for at least the next few months and the pace of rate normalization will be very slow. … In addition to its traditional domestic considerations of labor market growth and inflation, the Fed is understandably concerned with risks from abroad, so watching the USD and financial conditions in China should provide clues to any Fed move

AXA IM’s David Page: “The … statement acknowledged slower economic activity, but also an easing in headwinds from abroad. However, there were few clues to the monetary outlook. These are only likely to emerge over the coming weeks with participants’ commentary and the minutes to this meeting.

“We continue to expect a modest acceleration in economic activity to return the FOMC to considering tighter policy again. On balance, we forecast the FOMC to tighten policy again in July, one of two expected moves this year.”

MARKETS MOVE HIGHER — Reuters: “Asian stocks edged higher on Thursday as the U.S. Federal Reserve appeared to be in no hurry to raise interest rates, while oil consolidated gains after hitting a 2016 peak.”


NEW ANTI-POVERTY BILL INTRODUCED — Per release: “In spite of years of national economic recovery and strong growth in the stock market, more than 50 million Americans are living in economically distressed communities. Bipartisan legislation from Senators Tim Scott (R-SC) and Cory Booker (D-NJ) and Representatives Pat Tiberi (R-OH) and Ron Kind (D-WI) aims to catalyze growth and opportunity in these”

RATTNER DROPS BID TO RETURN TO I-BANKING — NYT’s Liz Moyer: “Remember Steven L. Rattner’s return to investment banking? Never mind. The former financier, who in 2010 was barred from the business for two years and sought re-entry in 2013, withdrew his long-stalled request for reinstatement, according to an April 8 letter informing regulators of the decision … The withdrawal occurred within weeks of the Securities and Exchange Commission’s order that cleared his path to affiliate with the advisory firm Guggenheim Securities.

“Representatives of Mr. Rattner said Wednesday that the S.E.C.’s March 14 order approving his application to affiliate with Guggenheim had been stayed while the agency’s commissioners reviewed the work of the trading and markets division staff, which had approved the March order. Because Guggenheim and Mr. Rattner withdrew the application, that review never took place, the representatives said”

POTUS Events

10:00 am || Receives the Presidential Daily Briefing
7:00 pm || Marks Passover with a Seder Dinner; Old Family Dining Room

All times Eastern
Live stream of White House briefing at 1:00 pm

Floor Action

The Senate is in at 10 a.m., with a vote at 2 p.m. on water and energy spending expected but not scheduled. The House is in at 10 a.m. with work on the disapproving the fiduciary rule; votes expected beginning around 1:15 p.m.