Category: Regulatory

Employer Social Media Policies: Another One Bites the Dust

An article by Gerald F. Lutkus of Barnes & Thornburg LLP regarding Employer Social Media Policies was recently published in The National Law Review:

The NLRB has continued its assault on employer social media policies and a recent Administrative Law Judge ruling from the Board further complicates the issue. The Acting General Counsel, in his various reports on the Board’s social media cases, has made it clear that employers need to include disclaimers in their policies that nothing in the policy is meant to interfere with employee Section 7 rights. However, a San Francisco-based ALJ, in a lengthy opinion dealing with the social media policy of G4S Secure Solutions (USA) Inc., struck down that company’s social media policy even though it included such a disclaimer.

Specifically, the ALJ found that G4S’s policy was overbroad and would chill the exercise of Section 7 rights by employees of the company. G4S’s policy stated, “This policy will not be construed or applied in a way that interferes with employees’ rights under federal law.” The ALJ expressly determined that “it cannot be assumed that lay employees have the knowledge to discern what is federal law, and thus permitted under the disclaimer, as opposed to what is prohibited ‘legal matter’.” Though the ALJ did not go beyond that, the clear suggestion from the opinion is that a disclaimer of noninterference with Section 7 rights must be far more particular in explaining what types of rights are, in fact, protected under Section 7 and, thus, not prohibited under an employer’s social media policy. Of course, most employers are reluctant to spell out in detail in their own policy manuals exactly what types of activity employees may engage in as protected activity under Section 7 of the NLRA.

The judge’s ruling also struck down that portion of the company’s policy forbidding employees from commenting on work-related legal matters, but allowed a provision that prohibited the posting on social media sites of pictures of employees in their security uniforms.

A full text of the ALJ’s ruling in G4S Secure Solutions can be reviewed here.

© 2012 BARNES & THORNBURG LLP

Supreme Court Broadens the Types of Federal Agency Actions That Can Be Challenged in Court

Recently an article by Jerry Stouck and David B. Weinstein of Greenberg Traurig, LLP regarding the  Types of Federal Agency Actions that can be Challenged in Court was published in The National Law Review:

GT Law

The Supreme Court recently held, in Sackett v. Environmental Protection Agency, that “compliance orders” unilaterally issued by the EPA, which the agency contended were informal directives not subject to judicial review, qualify as “final” agency actions that can be challenged in court under the Administrative Procedure Act (APA). The decision is not limited to EPA compliance orders, although many hundreds of those are issued each year, which now will be subject to judicial review. Sackett applies more broadly because it expands the types of federal agency actions that will be deemed final, and thus subject to judicial challenge, under the APA. Any agency action that has coercive legal effect, and no established avenue for agency-level review, is now potentially challengeable under Sackett.

The APA authorizes federal courts to enjoin or set aside agency action that is arbitrary, capricious, or contrary to law, and to compel agency action unlawfully withheld or unreasonably delayed. In any such case, however, it is a jurisdictional requirement that the agency action be “final.” The rationale is that courts should not interfere with ongoing agency decision-making. Such finality is relatively clear when a party challenges a regulation or an order resulting from formal agency adjudications (e.g., license or permit proceedings). But most actions of federal regulatory agencies fall into neither category, and instead constitute what practitioners call “informal” agency adjudication. EPA compliance orders are in that category; they do not result from any well-defined agency proceeding. So are many other types of agency directives and procedures.

Sackett involved a couple who, in the course of developing a residential lot they owned into a home site, filled in part of the lot with dirt and rock. Unbeknownst to the Sacketts, their lot contained wetlands that the EPA considered to be within federal regulatory jurisdiction under the Clean Water Act (CWA). If that were true, the Sacketts could not lawfully fill the wetlands without a federal permit. The EPA issued a compliance order containing “Findings and Conclusions” that the lot did in fact contain wetlands subject to EPA jurisdiction. The order also directed the Sacketts to restore the lot in accordance with an EPA work plan and to provide EPA with access to the lot and to records concerning conditions at the lot.

The Sacketts, who believed their lot did not contain wetlands subject to the CWA, requested a hearing before the EPA, which the agency refused to provide. The Sacketts then filed suit, but the lower courts dismissed it, finding that the compliance order did not qualify as final agency action under the APA. Thus, the Sacketts were unable to initiate a judicial proceeding to resolve the dispute over whether their wetlands were subject to the CWA. But if the EPA later went to court to enforce its compliance order, the government contended that statutory per-day penalties owing from the Sacketts would double, and that obtaining a necessary permit would be more onerous under applicable regulations. In essence, therefore, the EPA compliance order was coercive — if the Sacketts “voluntarily” complied with the order, they would avoid the double penalties and the additional permitting requirements.

That coercive effect was central to the Supreme Court’s reasoning in holding that the compliance order was a final agency action, subject to judicial review. The coercive effect of the EPA compliance order in Sackett is also what makes the decision potentially applicable to other, similarly-coercive agency directives and procedures. Under the test articulated by the Court in a 1997 decision, Bennett v. Spear, agency action is “final” for APA purposes if it both “determines rights and obligations” and marks the “consummation” of the agency’s decision-making process. The Court in Sackett found the former requirement satisfied because “legal consequences” flowed from the compliance order, i.e., the doubling of the statutory penalties and tightening of the wetlands permitting requirements. The government contended, however, that even though the EPA refused the Sacketts’ request for a hearing, the compliance order was not the end of the Agency’s decision-making process. The government pointed to a portion of the order that invited the Sacketts to “engage in informal discussion” with the EPA regarding the order’s terms and requirements and/or any allegations in the order that they believed to be inaccurate. The Court rejected this argument, and found the compliance order sufficiently final, because it conferred no “entitlement” to further Agency review. The Court concluded that the “mere possibility” that an agency might reconsider as a result of informal discussions “does not suffice to make an otherwise final agency action nonfinal.”

Underlying the Sackett decision is a concern, expressly noted by the Court, that agencies should not be allowed to “strong-arm . . . regulated parties into ‘voluntary compliance’ without the opportunity for judicial review.” When regulated parties face such strong-arming at the hands of federal agencies they should now consider whether, pursuant to Sackett, judicial redress is available under the APA.

©2012 Greenberg Traurig, LLP

Identity Theft Continues to Top FTC’s List of Consumer Complaints

Recently The National Law Review published an article by Rachel Hirsch of Ifrah Law regarding FTC’s Top Consumer Complaints:

For more than a decade, the Federal Trade Commission has been releasing its list of the top ten categories of consumer complaints received by the agency in the previous year. This list always serves as a good indication of the areas toward which the FTC may choose to direct its resources and increase its scrutiny.

For the 12th year in a row, identity theft was the number one complaint received by the FTC. Out of more than 1.8 million complaints the FTC received last year, 15% – or 279,156 – were about identity theft. Of those identity theft complaints, close to 25 percent were related to tax or wage-related fraud. The number of complaints related to identity theft actually declined in 2011 from the previous year, but this type of fraud still topped the list.

Most identity theft complaints came from consumers reporting that their personal information was stolen and used in government documents — often to fraudulently collect government benefits. Complaints about government document-related identity theft have increased 11% since 2009 and represented 27% of identity theft complaints last year. These numbers are likely to increase as concerns about consumer data privacy continue to garner the attention of the FTC.

After ID theft, the FTC’s top consumer complaints for 2011 were as follows:

• Debt collection complaints
• Prizes, sweepstakes, and lotteries
• Shop-at-Home and catalog sales
• Banks and lenders
• Internet services
• Auto-related complaints
• Imposter scams
• Telephone and mobile services
• Advance-fee loans and credit protection or repair

While credit cards are intertwined with many of the above complaints, complaints about credit cards themselves are noticeably absent from the 2011 list. In past years, credit card fraud was a major source of complaints from consumers. The drop in credit card-fraud-related complaints, however, is not surprising given the passage of the Credit CARD Act of 2009. This landmark federal legislation banned interest rate hikes “at any time for any reason” and limited the instances when rates on existing card balances could be hiked by issuers. The law also required lenders to give customers at least 45 days advance notice of significant changes in terms to allow card users time to shop around for better terms.

With the upcoming changes to the FTC’s advertising guidelines, there may very well be new additions to the consumer complaint list next year. Those complaints that already appear on the list are also likely to receive increased scrutiny.

© 2012 Ifrah PLLC

FDA Discloses Method for Classifying Food Facilities as "High Risk" Under FSMA

The National Law Review published an article regarding FDA High Risk Food Facilities Classification Methods written by Lynn C. Tyler, M.S., Nicolette R. Hudson and Hae Park-Suk of Barnes & Thornburg LLP:

The Food Safety Modernization Act (FSMA), signed by President Obama in January 2011, requires FDA to inspect food facilities on different time tables depending on whether a facility is classified as “high risk” or not. High-risk facilities must be inspected at least once within the first five years after the enactment of the FSMA and once every three years thereafter. Non-high risk facilities must be inspected at least once within the first seven years after the enactment of the FSMA and once every five years thereafter.

The U.S. Food and Drug Administration (FDA) recently disclosed the method it intends to follow to classify food facilities as high risk or non-high risk under the FSMA. The agency first noted that the FSMA set forth six risk factors to be considered in making this determination:

  • The known safety risks of the food manufactured, processed, packed or held at the facility
  • The compliance history of the facility
  • The facility’s hazard analysis and risk-based preventive controls (HARBPC)
  • Whether the food at the facility meets the criteria for priority to detect intentional adulteration in imported food
  • Whether the food at the facility has received certain certifications
  • Other criteria identified by Health and Human Services

FDA then noted that for FY 2011-13 the classification decision will be based primarily on the first two factors and according to the following algorithms:

  • If a facility manufactures food categories associated with foodborne outbreaks AND class I recalls (reasonable probability of serious adverse health consequences or death), it is high risk
  • If a facility manufactures food categories associated with foodborne outbreaks OR class I recalls AND it has not been inspected within the last five years, it is high risk
  • Facilities with a checkered compliance history (three or more inspections resulting in Voluntary Action Indicated findings or one or more resulting in Official Action Indicated findings within the last five years) are high risk

FDA stated that it plans to modify and adjust these criteria in the future as it develops data on some of the FSMA criteria and for other reasons. It also reserved the right to inspect a facility more frequently when necessary in its judgment.

© 2012 BARNES & THORNBURG LLP

Process Improvement Can Drive Shareholder Returns: Is Your Institution Ready for Process Improvement?

Recently an article by The Financial Institutions Group of Schiff Hardin LLP regarding Process Improvement was published in The National Law Review:

Many banks have been fighting for their lives since the financial crisis began in 2008—focusing on improving credit quality, finding capital and persuading the regulators to release enforcement actions. As the economy slowly improves and bank balance sheets stabilize, boards and CEOs will start to focus on growth opportunities and improving their banks’ operating efficiency, all with the goal of driving shareholder returns. With challenging revenue prospects going forward and increasing compliance costs, banks need to reduce the cost of their operating models while improving customer service and sales. This requires a laser focus on process improvement.

Reviewing your organization’s processes increases the likelihood that you can eliminate redundancy, reduce risk and expense, address regulatory requirements and take advantage of technology to better serve your banking customers. In this article, guest author Kristin Kroeger of Fifth Star Consulting LLC, reviews the criteria for assessing whether or not your bank is ready for an effective process improvement program.

Real Life Examples of Process Improvement Opportunities

  1. A community bank with a focus on C&I (commercial and industrial) lending survived the financial crisis and remains well capitalized. As its focus returned to organic growth in a very crowded and competitive market, the bank undertook a review of its end-to-end commercial lending processes with a goal of reducing its delivery cost and increasing its market responsiveness. By increasing the use of technology through adoption of a workflow tool and electronic document storage, as well as a realignment of its client-facing support staff, the bank was able to remove costly rework and improve its credit risk management process while reducing response time to client requests.
  2. A community bank that experienced a significant contraction in business during the financial crisis found itself with excess real estate and decentralized operations across multiple functions. By undertaking a process review of its deposit and retail operations, the bank determined it could consolidate certain functions, reduce headcount, eliminate a(non-target) leased location, and reduce operating risk within a better controlled environment.
  3. A community bank with new executive leadership decided to centralize its operations functions that historically had been managed within each line of business. This transition required the bank to examine each process it owned, challenge the status quo, and address existing technology and control deficiencies. As a result of the process review, redundant positions and processes were eliminated and a new operating culture emerged, which was better focused on the customer with a lower overall cost to the bank.

Success Begins by Asking the Right Questions Early

Before embarking on a process improvement effort, ask yourself these questions:

  • Does the bank’s executive management team fully support this effort?
  • Does the bank have a culture that rewards performance?
  • Does the bank understand how to effectively change management and, if so, does it have the capacity to make it happen?
  • Does the bank have the people with the right skills aligned with the process improvement project?
  • What value-based outcomes do we expect from the process improvement project?

Executive Management Engagement

Process improvement, by definition, invites an organization to question why it does things a certain way. Management support is critical to the success of these initiatives. Bank leadership must champion the value of becoming process-focused and provide the necessary resources—both time and money—to enable the success of the program. Having the CEO repeatedly remind employees why the process improvement program is valuable to the bank, its customers and shareholders, and the employees’ livelihood will motivate and drive employee commitment and performance.

To this end, bank management needs to focus on process improvement as a core initiative and tie it to the strategic vision, shared goals of the organization and compensation program. In doing so, you ensure that process improvement has the continuous focus of the management team and becomes part of the culture and fiber of the organization.

Culture of Success and Commitment To Managing Change

From the lowest paid employee to the top levels of management, a passion for doing the right thing breeds success in a company. Banks will benefit from using their reward and recognition program to complement process improvement plans. Recognize employees who embrace the program early. Continue to build a following by repetitive recognition of early wins and contributions.

Additionally, one of the biggest obstacles to a successful process improvement initiative is resistance from those who may benefit the most. Organizations that are most successful at getting results from process improvement have change management as a core discipline. First, banks should embed a readiness approach into their project plan that addresses training and communication to impacted employees. Second, ensure that affected employees have the time and training they need to learn the new methods. They need to know that management supports time away from daily activities if it is dedicated to learning new skill sets. Finally, be aware that organizations can only absorb so much change at one time. Plan your initiative so that impacted employees have time to adjust prior to adding more change to their environment.

Cross-Functional Engagement

One of the cornerstones of successful process improvement projects is to select what processes to study and then define where they start and where they end. When one particular bank department is sponsoring the improvement initiative, it is easy to become internally focused. Rarely, however, does the same department own the start point, handoffs and end point. Truly transformational change comes from evaluating an organization’s processes across functions. This requires interdepartmental involvement and a commitment to the same vision and goals through proper resourcing and support.

The Right People

While all of the prerequisites for a successful process improvement initiative are important, having the right people resourcing your project is critical to its success. How do you select the right people? Think about your bank organization and the people within it, and ask yourself the following questions:

  • Who is already improving processes on an informal, undirected basis?
  • Who amongst our employees has the credibility and courage to question the status quo?
  • Are there natural leaders in the organization who can establish rapport easily with other departments?
  • Which employees understand our banking business and have the ability to capture processes and document them?

While your employees may be great at what they do, often they may not be good at documenting what they do and explaining why it is done that way. Flourishing process improvement programs select employees who have the respect of their own team, can establish rapport with other departments, have the trust and credibility with management to question and interrogate current processes, and can document them with the level of specificity required by the project team. Lack of properly qualified resources will quickly grind your program to a halt.

Patience and Avoiding Perfection

Process improvement is a journey, and depending on the state of your organization it may take several iterations to achieve the smooth-running, well-oiled machine you are envisioning. If you are considering embarking on this journey, understand that it can be a multi-year voyagerequiring patience and commitment to achieve the long-term vision that enables a series of early wins to grow into an engine of continuous improvement.

Evaluate, Review, Audit

Regardless of your approach, any process improvement effort becomes dated and ineffective without a culture of continuous review. Banking organizations that truly embrace process improvement are evaluating their processes on a regular schedule, reviewing the processes with their business partners, and auditing how the employees perform their jobs against the documented processes.

© 2012 Schiff Hardin LLP

Liability for inside bridge rounds?

The National Law Review recently published an article by Michael D. DiSanto of Dinsmore & Shohl LLP regarding Inside Bridge rounds and their liability:

Imagine for a moment that you are the CEO of a venture-backed technology or services startup. The company is in the midst of a round of funding, and it is taking longer than anticipated for whatever reason. The cash coffers are unnervingly low, with payroll or other normal monthly expenses right around the corner.

Or maybe the situation is something different. Maybe the company isn’t a technology or services company at all. Maybe it is a manufacturing company and the first big order has just arrived. The company needs to lay out a pile of cash to scale up its team or otherwise secure the necessary raw materials to fulfill the order.

Whatever the case may be, who is the first person the CEO typically calls to alleviate the temporary cash crisis? That is an easy one. The CEO almost always reaches out to the member of the board of directors that represents the private equity fund that typically demonstrates the most support for the company. The conversation typically lasts a few minutes, as the pair hammer out standard (or maybe not so standard) terms for a bridge loan, and the cash coffers are reloaded a few short days later.

Problem solved, right? Not necessarily.

The company’s short-term cash flow problem is solved. Yet, in at least one part of the country, the venture capital funds funding the bridge loans and the director designees approving the transaction could face liability for a breach of the duty of loyalty, if the transaction does not pass the “entire fairness” test.

Did that grab your attention? It certainly grabbed mine.

The Seventh Circuit issued an opinion that, if adopted by California and Delaware, could turn the common practice of inside bridge loans on its head.

The facts of the case probably sound all too familiar to anyone involved with technology startups during the so-called “bubble burst” in 2000 and the global economic crisis that kicked into high gear in late 2008. Cadant was a technology startup incorporated under the laws of Delaware and backed by an investor syndicate lead by two well known venture funds —Venrock and J.P. Morgan. Cadant was facing dire straits in the fall of 2000. Unable to complete a round of preferred stock financing, Cadant sought a bridge loan from an outside investor group, as well as an inside proposal from Venrock and J.P. Morgan.

In late January 2001, the VCs funded an $11 million bridge loan at 10 percent interest and 90-day maturity. Cadant burned through those funds in no time, so the company went back to the deep pockets of its investor syndicate and raised another $9 million bridge from the VCs. This time, however, the bridge included a two-times liquidation preference and the published court opinion makes no mention about seeking a competing proposal.

The Cadant board at the time of both transactions consisted of seven directors. Four were designees of the VCs. The other three were “engineers without financial acumen” who were basically “at the mercy of the financial advice” they received from the four VC designees. The board reportedly relied on Eric Copeland, one of its directors and a Venrock principal, to negotiate the terms of the two bridge loans, despite the fact that Copeland had a clear conflict of interest.

The rest of the story isn’t difficult to predict. Cadant ultimately defaulted on both bridge loans and agreed to sell all of its assets for stock then valued at approximately $55 million. That amount was completely consumed by the liquidation preference of the preferred stockholders and the company’s outstanding debt. The common holders received nothing. Bankruptcy ensued and a liquidating trust brought suit against the VC funds and their director designees.

The Seventh Circuit held that a decision by VC representatives on a board to approve a loan was essentially self-dealing that could not be cured by a vote of majority of the disinterested directors where the interested directors set the terms of the deal. The deal, therefore, had to be evaluated under the entire fairness doctrine, which could raise liability questions when distressed companies do not go out and shop the offer to get a market check as to the fairness of the terms. Note also that the VC funds, while not owing a fiduciary to shareholders directly, faced liability under an aiding and abetting theory.

This opinion seems to be at odds with Delaware law that appears on its face to allow a majority of disinterested directors to approve the deal so long as it was fully and fairly disclosed. Note that the court applied Delaware law due to the internal affairs doctrine, since the company was incorporated in Delaware.

Courts outside of the Seventh Circuit are obviously not bound by this decision. But Judge Posner, the man who authored the opinion, is one of the most well respected and widely cited members of any judiciary. If the Delaware Chancery Court adopts a similar position on the issue, it could result in a dramatically change in the appetite for VCs to fund quick inside bridge rounds for distressed portfolio companies hoping to create some breathing room ahead of an equity round or exit.

What’s the BIG deal?

Judge Posner’s opinion won’t likely have a chilling effect on inside bridge rounds for Delaware corporations, nor should it. Instead, it should serve as a bit of a wakeup call companies and investors shooting from the hip when it comes to inside bridge rounds.

Two practice points jump off the pages of the opinion. First, directors should think twice before sitting on both sides of the negotiation table when a CEO comes asking for a bridge loan. Had one of the non-VC designees negotiated the terms with the VCs in this case, the case might not have survived a motion to dismiss.

Second, boards should be prepared to defend inside bridges under the “entire fairness” test. Performing some semblance of a market check, if possible, is one way to help avoid liability. You know what they say – the more the merrier when it comes to competing proposals.

It will be interesting to see if Delaware and other jurisdictions ultimately decide to adopt Judge Posner’s approach to dealing with inside bridge rounds.

© 2012 Dinsmore & Shohl LLP.

SEC Enforcement Actions: A Look at 2011 and What to Expect in the Next Year

A recent article by Matthew G. Nielsen and Crystal Jamison of Andrews Kurth LLP regarding SEC Enforcement recently appeared in The National Law Review:

In 2011, the U.S. Securities and Exchange Commission ushered in a new era of securities regulation, marked by a record-setting number of enforcement actions and a significant expansion of enforcement techniques and tools. This E-Alert focuses on key developments during 2011 and trends that will likely shape the SEC’s enforcement program in the next 12 to 18 months.

Key Developments in SEC Enforcement During 2011

Record-Setting Numbers

Over the last two years, the SEC has significantly reorganized its Division of Enforcement, most notably through the creation of special investigative units and multi-agency working groups dedicated to high-priority areas of enforcement. Also in this period, the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act gave the SEC new enforcement tools, including expanded enforcement authority, wider use of administrative proceedings, and broader scope of and expanded penalties for violations of securities laws. 2011 was the first full year of the SEC’s enforcement program under these new changes.

The organizational reforms and new tools culminated in the SEC filing a record 735 enforcement actions in 2011, an 8% increase from 2010.1 In 2011, the SEC filed 266 civil actions against 803 defendants, a slight increase from 2010, but substantially down from 2009. The SEC, however, continued the upswing in administrative proceedings, filing 469 cases against 1,058 individuals and companies in 2011, representing a 33% increase as compared to administrative cases brought in 2009. While the SEC sought about the same number of temporary restraining orders in 2011 versus 2010 (39 and 37, respectively), the agency requested much fewer asset freezes as compared to 2010, declining 26% from 57 to 42.

During 2011, the SEC obtained judgments and settlements for $2.806 billion in penalties and disgorgement, only slightly down from the 2010 record of $2.85 billion.2 But, the median settlement value with companies nearly doubled from $800,000 in 2010 to $1.47 million in 2011, near the post-Sarbanes-Oxley high of $1.5 million in 2006.3 And, the median settlement value for individuals was $275,000, a 35% increase from the previous post-SOX high of $130,000 in 2008.

Not all numbers were up, however. In 2011 the SEC both opened and closed fewer investigations. While the number of investigations opened was only slightly down from 2010, the number of investigations closed decreased by 36%.4 The SEC, however, saw an increase in formal investigations opened during 2011, rising nearly 9% from those opened in 2010 and 16.5% from 2009.

Major Enforcement Areas in 2011

Financial Crisis Cases — Enforcement actions against firms and individuals linked to the 2008 financial crisis remained a high priority for the SEC in 2011, continuing a three-year rise in the percentage of SEC settlements involving alleged misrepresentations or misappropriation by financial services firms. These types of settlements accounted for 41.6% of all SEC settlements in 2011, as compared to the average of 23.7% seen from 2003 to 2008.5 Since 2008, the SEC has filed 36 separate actions arising from the financial crisis against 81 defendants, nearly half of whom were individuals, meaning CEOs, CFOs and other senior corporate executives. Fifteen of these actions were filed in 2011, up from twelve filed in 2010. The majority of cases related to collateral debt obligations (“CDOs”) and mortgage-backed securities.

Notable 2011 financial-crisis cases include an SEC action brought against six executives at Brooke Corporation and three executives at mortgage lender IndyMac Bancorp for allegedly misleading investors about the deteriorating financial condition at their respective companies. The SEC also filed several actions alleging that firms concealed from investors the risks, terms, and improper pricing of CDOs. But, the most notable case of 2011 came in December, when the SEC filed suit against six former top executives at Fannie Mae and Freddie Mac for allegedly causing the companies to underreport the number of subprime mortgages they purchased during 2006 to 2008.6 

Investment Advisers and Broker-Dealers — In 2011, there was a substantial increase in the number of actions against SEC registrants, with 146 actions against investment advisers and investment companies, a 30% increase from 2010, and 112 broker-dealers actions, up 60% from 2010. Indeed, investment adviser, investment company, and broker-dealer actions constituted over 35% of the SEC’s total enforcement actions in 2011. The SEC focused on traditional areas of concern including inaccurate or inadequate disclosure, conflicts of interest, misappropriation of client assets and fraudulent trading schemes, misallocation of investment opportunities, false or misleading performance claims, and market manipulation. Another top priority that is likely to gain even more attention in the year to come is compliance programs, including the adoption and implementation of written compliance policies and procedures, as well as annual review of such programs.

Investment adviser and broker-dealer actions brought by the SEC in 2011 included charges against Charles Schwab entities and executives for allegedly making misleading statements to investors regarding a mutual fund heavily invested in mortgage-backed and other risky securities and AXA Rosenberg Group LLC and its founder for allegedly concealing a significant error in the computer code of the quantitative investment model that they used to manage client assets. The Schwab entities paid more than $118 million to settle the SEC’s charges, while AXA Rosenberg agreed to pay $217 million to cover investor losses and a $25 million penalty.

Insider Trading Cases — Protecting the integrity of the financial markets continued to be a major area of focus in the SEC’s enforcement program. In 2011, the SEC filed 57 insider trading cases (nearly an 8% increase over 2010’s total) against 126 defendants.7 Many insider trading cases also included parallel criminal charges by the Department of Justice (“DOJ”), including the highly-publicized Galleon hedge fund case discussed below. Among those charged in SEC insider trading cases in 2011 were various hedge funds managers and traders involved in an alleged $30 million expert network trading scheme, a former NASDAQ Managing Director, a former Major League Baseball player, and an FDA chemist. The SEC also brought insider trading charges against a Goldman Sachs employee and his father who allegedly traded on confidential information learned at work on the firm’s ETF desk, and a corporate board member of a major energy company and his son for allegedly trading on confidential information about the impending takeover of the company.

Executive Clawbacks — In 2011, the SEC became more aggressive in seeking executive compensation clawbacks. Section 304 of the Sarbanes-Oxley Act provides that if an issuer restates its financials because of misconduct, then the CEO and CFO “shall” reimburse any bonuses or other incentive-based compensation, or equity-based compensation, received during the year following the issuance of the incorrect financials. During 2011, the SEC sought clawbacks from executives even in instances where they were not personally involved in or aware of the alleged misconduct at the company, including a settlement to recover bonuses totaling more than $450,000 in cash and 160,000 options from the CEO of Koss Corp. for the CFO’s alleged wrongdoing. The SEC’s trend towards forcing innocent executives to pay the price for wrongdoing that happens under their watch will likely continue following the implementation of section 954 of Dodd-Frank early this year, which expands clawbacks to all executives, rather than just CEOs and CFOs, and is triggered even if the restatement did not occur because of “misconduct” by the issuer.

Chinese Reverse Mergers — Chinese companies who gain listing on a U.S. exchange through a reverse merger with a listed company have become a heavy focus of the SEC and other federal agencies. In 2011, the SEC unveiled new rules approved and adopted by each of the three major U.S. stock exchanges which impose more stringent listing requirements for foreign reverse merger companies. During the last 18 months, the SEC halted securities trading in several Chinese reverse merger companies, revoked the securities registration of several companies, and brought enforcement actions against executives and auditors of these types of companies.8 Moreover, the SEC is aggressively pushing to gain access to financial records for companies based in China. This led to the SEC’s suit against the Shanghai office of Deloitte Touche Tohmatsu CPA Ltd. to enforce an investigation subpoena compelling production of documents located in China.9 The Commission pursued this rarely used remedy when Deloitte refused to produce any documents, contesting the SEC’s ability to compel an audit firm to produce documents predating the Dodd-Frank Act and asserting that the production was prohibited under Chinese law. In resolving the tension between an entity’s competing obligations under U.S. and foreign law, the court recently granted the SEC’s show cause motion, thereby forcing Deloitte either to concede jurisdiction by appearing at the hearing, or to risk default judgment.

Breakdown of Major Categories of SEC Actions10


Changing the Structure of Enforcement Actions

New Cooperation Initiatives — In May 2011, the SEC entered into its first Deferred Prosecution Agreement (“DPA”), in which it agreed not to bring an enforcement action against Tenaris S.A. based on alleged violations of the FCPA, in exchange for Tenaris’ agreement to perform certain undertakings, to abide by a cooperation clause, and to pay about $5.4 million in disgorgement.11 The SEC introduced the DPA in 2010, along with the Cooperation Agreement and Non-Prosecution Agreement (“NPA”), as tools to encourage greater cooperation from individuals and companies. The SEC executed one NPA in 2010 and two more in 2012, one with Fannie Mae and one with Freddie Mac, in which the entities stipulated to certain facts and agreed to extensive cooperation clauses that make it clear the companies will be on the SEC’s side in the related litigation against individual targets.

Whistleblower Initiative — An additional initiative focused on rewarding cooperation is the SEC’s whistleblower program, another product of Dodd-Frank, that officially went into effect on August 12, 2011.12 The program is intended to incentivize whistleblowers to report potential securities violations to the SEC, with tipsters standing to earn bounty of 10 to 30% of any SEC recovery over $1 million. To qualify for the reward, the whistleblower must “voluntarily” provide “original information” that leads to successful enforcement proceedings. Within seven weeks of the SEC’s Office of the Whistleblower opening for business, it received 334 tips. So far, the most common complaint categories included market manipulation (16.2%), corporate disclosures and financial statements (15.3%), and offering fraud (15.6%).13

The SEC has yet to file a case based on a tip from the whistleblower programs, potentially because it is looking for the “perfect case” as the first few cases to come before the courts will likely be highly scrutinized given the huge potential bounties available to whistleblowers. Despite the apparent initial success of the program, the SEC’s limited resources and ability to follow up on tips may neutralize the impact of the initiative, giving companies a chance to investigate some of these complaints. Still, companies should refine compliance programs and training/awareness to encourage whistleblowers to approach internal investigators before going to the SEC directly.

Expanded Enforcement Tools — Through the Dodd-Frank Act, Congress increased the SEC’s enforcement power. The SEC is now allowed to seek civil monetary penalties and other relief in administrative proceedings, even those against entities that are not registered with the SEC, which were previously available only in federal court actions. The SEC flexed its new authority for the first time in March 2011 through a well-publicized administrative action in an insider trading case against Raj Rajaratnam, head of the Galleon Management hedge fund. Despite already receiving an 11-year prison sentence and being ordered to pay an $11 million fine and $53.8 million in restitution in the related DOJ action, the SEC imposed an additional $92.8 million civil penalty.14

Galleon highlights the convergence of SEC civil and DOJ criminal enforcement, and raises questions about double and excessive penalties in government enforcement actions. Other aspects of Galleon are also worth noting, including its potential to expand the SEC’s powers in conducting investigations. In Galleon, not only did the SEC use wiretaps in its investigation, the district court admitted the wiretaps into evidence – a decision that shocked many, especially Rajaratnam. This will play an important role in the upcoming year as wiretaps may become more routine in insider trading and other complex securities fraud cases.

Dodd-Frank also expanded SEC’s authority to bring aiding and abetting claims under the Securities Act of 1933 and to obtain civil penalties for aiding and abetting violations of the Investment Advisers Act of 1940. Congress also reduced the SEC’s burden to prove aiding and abetting liability to a “recklessness” standard. The SEC further obtained “collateral bar” authority — the ability to bar or suspend a registrant from the securities industry completely, although the registrant only committed a violation with regard to a particular segment. The effect of these new powers is not yet certain, but clearly give the SEC more tools in its enforcement program.

Key Securities Cases to Watch in 2012: Judiciary Pressuring the SEC to Re-Think Strategy

Janus and the Future of “Scheme Liability”

A Supreme Court opinion issued in June 2011 had an immediate impact on how the SEC pleads and attempts to prove its cases. In Janus, the Court considered whether separate legal entities within the Janus corporate group (adviser and parent) had exposure to primary liability for the statements of the entity issuing the securities and related disclosures.15 The Court ultimately interpreted the person who makes a statement very narrowly, finding that a defendant may be liable for making an alleged misstatement under section 10(b) of the Exchange Act only if he had “ultimate authority” or “control” over both the content and dissemination of the statement.

In the immediate wake of Janus, the SEC shifted the focus of its cases against non-speakers and non-signers from the “misstatements” prong of Rule 10b-(b) to the “scheme liability” provisions of Rules 10b-5(a) and (c) under the Exchange Act and to section 17 of the Securities Act. According to the SEC, Janus addressed only liability under Rule 10b-5(b), but “scheme liability” claims under subsections (a) and (c) of Rule 10b-5, as well as claims under section 17(a), survived Janus, because unlike Rule 10b-5(b) claims, these claims were not dependent on the word “make.”16 The lower courts are already grappling with how to apply Janus, with one court (and the SEC’s own Chief Administrative Law Judge) rejecting the SEC’s scheme liability and section 17(a) theories,17 while two others found Janusdid not apply to claims brought under section 17(a).18

SEC’s Pursuit of Negligence-Based Claims

In 2011, the SEC showed an increased willingness to proceed against alleged negligent or nonscienter-based conduct as opposed to scienter-based fraud, especially in the context of CDO-related cases. For example, the SEC charged Citigroup Global Markets, Inc. with misrepresenting to investors the quality of fund assets and with failing to disclose its short position against the assets.19Although the allegations appeared to be based on knowing and fraudulent intent, the SEC charged Citigroup only with negligence-based fraud under section l7(a)(2) and (3) of the Securities Act.

The negligence-based claims are easier to prove, thus the new focus should encourage companies to tighten their controls, deterring fraud before it happens, and leading to more stringent enforcement tactics. But, the penalties available for negligence-based misconduct are much lower than with scienter-based claims. Also, by focusing on negligent conduct, the SEC must divert its already scarce resources away from more flagrant, intentional conduct, running the risk of another “Madoff miss.”

Judicial Scrutiny of SEC’s “Neither Admit Nor Deny” Settlements

The use of negligence- and non-fraud-based settlements has already led to closer judicial scrutiny of the SEC’s standard settlement practices and language. In October 2011, the SEC reached a $285 million settlement with Citigroup relating to a mortgage-backed securities claim.20 In an unprecedented move, U.S. District Judge Jed S. Rakoff rejected the settlement as against the public interest because the SEC did not provide adequate factual support for the court’s approval and because Citigroup did not admit to any misconduct.21 Judge Rakoff sharply criticized the SEC’s longstanding practice of entering into settlements in which the defendant neither admits nor denies wrongdoing, finding that approving such settlements is “worse than mindless, it is inherently dangerous.” The SEC appealed the decision in December 2011.22

A second judge has followed suit, challenging similar language the SEC used in a settlement with Koss Corp. and its CEO.23 Both the defense bar and the SEC have expressed concerns about what will happen if this aggressive judicial scrutiny of settlements continues. If companies have to admit to violations to settle with the SEC, it will undoubtedly make it more difficult for the SEC and the defendants to reach settlements, meaning the number of settlements will go down and the amount of costly litigation will rise. Admitting guilt opens companies up to shareholder and other private litigation, and potentially even criminal liability. The SEC can only bring so many cases with its limited resources, as its Enforcement Director has repeatedly noted.

It is difficult to predict the result here. But, in the wake of Rakoff’s decision and the related media attention, the SEC announced on January 6, 2012, that parties will no longer be permitted to settle SEC charges on the basis of “neither admitting nor denying” wrongdoing when they admit to related criminal charges. This policy would also apply in situations in which a corporate defendant has entered into a DPA or NPA in the criminal matter.

Judicial Guidance on Key Issues Relating to the FCPA

In 2011, the courts also had the opportunity to weigh in on key issues relating to the FCPA, including the definition of “foreign official,” the knowledge requirement under the FCPA, and the jurisdictional scope of the Travel Act, which is often also charged in FCPA cases. An increased focus on pursuing individuals, who are generally more likely to litigate than companies, led to an unprecedented number of trials and related litigation that did not always bring favorable results for the government. Indeed, the government suffered a mistrial in the trial of the first group of SHOT Show Sting defendants and the convictions returned by the jury in the Lindsey Manufacturing case were vacated and the indictments dismissed.

Previously, judicial interpretations of the FCPA were limited and positions asserted by enforcement authorities often went unchallenged, especially in the context of settlements. Expect this year to bring even more opportunities for the judiciary to give guidance, as many of the 2011 decisions are the subject of appeals and more significant trial activity is poised to continue. The DOJ also announced that it will publish its own guidance on the FCPA in 2012.

Securities Enforcement in the Next Year

In 2011, the SEC soundly demonstrated its commitment to a vigorous securities enforcement program to address old and new priorities. All signs point to the SEC continuing to aggressively detect, prevent, and combat securities violations, especially in high-priority areas. Along with the progression of the key cases and areas identified above, here is what to expect in the next twelve to eighteen months:

  • More Dodd-Frank Initiatives: In addition to the continued development of the whistleblower program and other initiatives implemented this year, the SEC plans to conclude the voluminous rulemaking required by the Dodd-Frank Act, including finalizing rules on executive compensation.
  • More Financial Crisis Cases: While the SEC ramped up the number of cases stemming from the financial crisis, it will likely bring more such cases and name more individuals. Both Congress and the media have criticized the SEC for not holding more individuals accountable for wrongdoing that fueled the crisis.
  • Tougher Sentencing Guidelines: On January 19, 2012, in response to a Dodd-Frank directive to re-evaluate the sentencing guidelines for fraud offenses, the U.S. Sentencing Commission proposed amending the federal sentencing guidelines to include harsher penalties for senior leaders implicated in insider trading and increase the “offense level” and penalties for instances of “sophisticated insider trading.”24 These amendments, which could be approved later this year, would impact not only public companies, but also brokerage firms and investment advisers.

  • Shift to SEC Administrative Proceedings: The SEC will likely continue the trend of more enforcement actions through administrative proceedings, especially due to the SEC’s expanded remedies and claims in such proceedings coupled with the increased federal court scrutiny of settlements.

  • Continued Focus on High-Priority Areas: The SEC will continue to be active in its designated and traditional high-priority areas. Mostly notably, the SEC will likely focus on Asset Management (hedge funds, investment advisers, and private equity), Market Abuse (large-scale insider trading and other market manipulation schemes), FCPA, and insider trading cases. Also, with the SEC’s Whistleblower program underway, the SEC will likely institute more investigations and enforcement actions based on fraudulent financial reporting, which has waned over the last few years.

  • Increased Focus on Compliance Programs: The SEC will more heavily focus on the operations of compliance programs, both in examinations of registered advisers and broker-dealers and when making enforcement decisions as to SEC registrants where fraud has occurred. In addition to the right “tone at the top,” companies need to ensure that they have good policies covering key-risk areas (such as financial reporting, anti-corruption, business conduct and ethics, insider trading, and internal reporting channels for employees who suspect wrongdoing), appropriate training, and adequate oversight and testing.

1. SEC Press Release No. 2011-234 (Nov. 9, 2011), available athttp://www.sec.gov/news/press/2011/2011-234.htm. Note, the information provided by year in this E-Alert refers to the SEC’s fiscal-year data.

2. SEC Press Release No. 2011-214 (Oct. 19, 2011), available athttp://www.sec.gov/news/press/2011/2011-234.htm.

3. Year-by-Year SEC Enforcement Actions, available at http://www.sec.gov/news/newsroom/images/enfstats.pdf.

4. See Select SEC and Market Data Fiscal 2011, available athttp://www.sec.gov/about/secstats2011.pdf.

5. See NERA Releases 2011 Fiscal Year-End Settlement Trend Report (Jan. 23, 2012), available at http://www.nera.com/83_7590.htm.

6. See “SEC Enforcement Actions: Addressing Misconduct That Led to or Arose from the Financial Crisis,” available at http://www.sec.gov/spotlight/enf-actions-fc.shtml.

7. SEC Press Release No. 2011-234 (Nov. 9, 2011), available athttp://www.sec.gov/news/press/2011/2011-234.htm.

8. See April 27, 2011 letter from Mary Shapiro to Hon. Patrick McHenry, available athttp://s.wsj.net/public/resources/documents/BARRONS-SEC-050411.pdf.

9. SEC v. Deloitte Touche Tohmatsu CPA Ltd., No. 11-00512 (D.D.C.).

10. See http://www.sec.gov/news/newsroom/images/enfstats.pdf.

11. SEC Press Release No. 2011-112, “Tenaris to Pay $5.4 Million in SEC’s First-Ever Deferred Prosecution Agreement (May 17, 2011), available athttp://www.sec.gov/news/press/2011/2011-112.htm.

12. SEC Annual Report on the Dodd-Frank Whistleblower Program – Fiscal Year 2011 (Nov. 2011), available athttp://www.sec/gov/about/offices/owb/whistleblower-annual-report-2011.pdf.

13. Id.

14. U.S. v. Rajaratnam, et al., No. 09-01184 (S.D.N.Y.); SEC v. Galleon Mmgt, et al., No. 09-08811 (S.D.N.Y.).

15. Janus Capital Group, Inc. v. First Derivative Trader, 131 S. Ct. 2296 (2011).

16. SEC v. Kelly, 2011 WL 4431161 (S.D.N.Y. Sept. 22, 2011).

17. Id.

18. SEC v. Daifotis, 2011 WL 3295139 (N.D. Cal. Aug. 1, 2011); SEC v. Landberg, 2011 WL 5116512 (S.D.N.Y. Oct. 26, 2011).

19. SEC v. Citigroup Global Mkts., Inc., No. 11-07387 (S.D.N.Y.).

20. SEC Press Release No. 2011-214 (Oct. 19, 2011), available athttp://www.sec.gov/news/press/2011/2011-214.htm.

21. 2011 WL 5903733 (S.D.N.Y. Nov. 28, 2011).

22. See SEC Press Release No. 2011-265, SEC Enforcement Director’s Statement on Citigroup Case (Dec. 15, 2011), available athttp://sec.gov/news/press/2011/2011-265.htm.

23. SEC v. Koss Corp., et al., No. 11-CV-00991 (E.D. Wis.). On February 2, 2012, Wisconsin federal Judge Rudolph Randa issued an order directing the SEC to “provide a written factual predicate for why it believes the Court should find the proposed final judgments are fair, reasonable, adequate, and in the public interest.” Judge Randa cited Rakoff’s objections to the Citigroup settlement in his order.

24. See Carolina Bolado, US Proposes Tougher Sentences for Securities Fraud, Jan. 19, 2012, available at http://www.law360.com/topnews/articles/301721/us-proposes-tougher-sentences-for-securities-fraud.

© 2012 Andrews Kurth LLP

Finally the Final … 408(b)(2) Regulation

Recently The National Law Review published an article by Fred Reish and Bruce L. Ashton of Drinker Biddle & Reath LLP regarding The DOL Service Provider Fee Disclosure Regulations:

The Department of Labor (DOL) has issued the long-anticipated final service provider fee disclosure regulation (the “408(b)(2) regulation”). (A complete copy of the final regulation and its preamble is at http://www.drinkerbiddle.com/files/ftpupload/pdf/408b2reg. pdf) In this Alert, we describe what the amendment says; in a subsequent piece, we will explain the impact on various service providers.

>   The extension of the compliance date from April 1, 2012 to July 1, 2012

>   The fact that service providers are not required to provide a summary of the disclosures, though the DOL provided a sample “guide” that is not mandatory

>   The addition of the requirement to describe the arrangement between the service provider and the payer of indirect compensation

>   Limited relief for disclosures for brokerage accounts and similar arrangements

>   Clarification that electronic disclosure of the disclosures is permitted

>   Relief from the disclosure requirements for “frozen” 403(b) contracts

>   The requirement that plan sponsors terminate the relationship with a service provider who fails or refuses to provide information on request

Background

The 408(b)(2) regulation requires most service providers to retirement plans – including pension, profit sharing, 401(k) and 403(b) plans subject to ERISA – to make written disclosure of their services, fiduciary and/or RIA status and total compensation. The regulation was first proposed in 2007, was issued as an “interim final” regulation in July 2010 and has now been finalized with today’s release.

In light of its “interim final” status, it had been widely anticipated that amendments to the regulation would be issued; and the DOL invited comments on several issues in the 2010 release. In August of this year, the DOL publicly announced that it was working on an amendment and as a result extended the compliance date. Now, in issuing the final rule, the compliance date has once again been extended, though for only three months (i.e., July 1, 2012). Given the scope of some of the changes, this may not be sufficient time for covered service providers to develop and disseminate the required information on an orderly basis…which could result in errors.

Because of the delayed compliance date, some service providers have deferred starting the process of preparing the forms and creating the systems needed to comply with the disclosure requirements. Some did so to avoid having to make changes and others may have hoped for a more extended delay. That is not going to happen, and service providers should circle July 1, 2012 (barely five months away) on their calendars to make sure they are in full compliance by that date for existing clients and that they are prepared to comply with advance disclosures for any new clients.

The Final Regulation

The most important changes in the newly released amendment are:

  • Covered Plan – The definition of covered plan now excludes annuity contracts and custodial accounts in 403(b) plans that were issued to employees before January 1, 2009, where no additional contributions have been made and the contract is fully vested and enforceable by the employee.
  • Indirect Compensation – The final regulation has made a fairly significant change in the disclosure of indirect compensation (that is, compensation received from a source other than the plan or plan sponsor). The disclosure must now include both identification of the payer and a description of the arrangement between the payer and the covered service provider, affiliate or subcontractor pursuant to which the indirect compensation is paid. There is limited relief for disclosures related to brokerage accounts and similar arrangements.
  • Investment Information – The regulation modifies the information that must be provided by recordkeepers and others to better track the disclosures required in the participant disclosure regulation. It also adds a requirement to disclose information that is within the control of (or reasonably available to) the covered service provider and that is required for the plan administrator to comply with the participant disclosure regulation.
  • Form of Disclosure – There was speculation that the DOL would require service providers to include a summary of the disclosures and a “roadmap” for finding the disclosures in the documents provided. It did not do so and has indicated that it will be issuing a proposed rule regarding a summary or roadmap (now referred to as a “guide”) requirement in the future. In the meantime, the DOL did provide a sample guide that may, but is not required, to be used. That said, in the preamble, the DOL states, “Similarly, to the extent a responsible plan fiduciary experiences difficulty finding and reviewing the required disclosures in lengthy, technical, or multiple disclosure documents received from a covered service provider pursuant to the requirements of the final rule, the fiduciary should consider requesting assistance from the covered service provider, for example, discussing with the covered service provider the feasibility and cost of using the attached sample guide.”
  • Manner of Delivery – The final regulation clarifies that nothing in the regulation limits the ability to use electronic media.
  • Change Notice – The interim final regulation required that changes in the information previously provided had to be given to the responsible plan fiduciary not later than 60 days after the service provider becomes aware of it. This “update requirement” applied to all disclosures, including investment-related information. The final rule changes this requirement to say that the deadline for disclosure of investment-related information is “at least annually.” In other words, for this type of information, the updating requirement is now annual.
  • Reporting and Disclosure Response – The interim final rule required a service provider to give information necessary for a plan administrator to comply with the plan’s reporting and disclosure requirements under ERISA within 60 days after a written request. This has been changed to say that the information must be provided (in response to a written request) reasonably in advance of when the plan administrator must comply with its reporting obligation.
  • Compensation Definition – The final regulation amends the definition of compensation to permit a service provider to provide a “reasonable and good faith” estimate of compensation if it is not otherwise readily able to describe its compensation, though the covered service provider in this case is also required to explain the methods and assumptions used for the estimate.
  • Plan Fiduciary Relief – The regulation provides an exemption for plan fiduciaries if the service provider fails to provide required disclosures so long as various requirements are met. The exemption originally stated that if the service provider failed to provide the information upon request, the plan fiduciary was required to consider whether to continue the relationship with the service provider. The final rule now requires the plan fiduciary to terminate the relationship if the service provider fails to provide requested information relating to future services.

Finally, the compliance effective date for the participant disclosures has also been pushed back. For calendar year plans, the initial disclosures of plan and investment information must be provided by August 30, 2012, and the first quarterly expense statement is required by November 14, 2012 (covering the third quarter).

We will be discussing the impact of the changes and the compliance issues in a month or so in another, more detailed bulletin. However, we wanted to get this information to you as quickly as possible.

©2012 Drinker Biddle & Reath LLP

Energy and Environment Update, February 19, 2012

Recently published in The National Law Review was an article by David J. Leiter and Sarah Litke of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. regarding a Compilation of Energy and Evironment Updates:

Energy and Climate Debate

President Obama on February 13 sent Congress a $3.8 trillion budget request for fiscal year 2013 that, after a week of hearings and analysis, is likely to continue fueling debates over spending and taxes through the end of the year. One of the most interesting highlights of the budget includes the president’s varied ways of encouraging clean energy and infrastructure spending this year as the country works to boost the economy and create jobs.

In line with his State of the Union call for an all of the above energy strategy, the president’s budget request calls for an elimination of $4 billion in fossil fuel subsidies and a shift in funding from decreasing military actions in Iraq and Afghanistan to infrastructure projects. Though numerous entire department budgets remain relatively static, clean energy, climate, and environment issues are important components and priorities of the request, which encourages developing new clean energy, advancing research and development funding for clean energy, and promoting advanced manufacturing and jobs.

On the tax front, the administration proposes extending the production tax credit for wind facilities and the investment tax credit for wind facility properties to properties placed in service in 2013; the budget would also provide an additional $5 billion for the Advanced Energy Manufacturing Tax Credit (48C). The request would expand the tax credit for plug-in electric vehicles and remove the cap on the number of vehicles per manufacturer that can receive the credit, while also proposing a new tax credit for medium and heavy duty vehicles.

The emphasis on clean energy funding in the Department of Energy’s overall $27.2 billion funding request is high. Last Monday, the president proposed spending $2.3 billion, a 29 percent increase, on renewable energy and energy efficiency programs in the agency’s FY2013 budget. The request also includes increased support for advanced manufacturing (up 150 percent from $115.6 million to $290 million) and the department’s Advanced Research Projects Agency – Energy initiative, and at the same time, the agency is not seeking further loan authority or credit subsidies for its loan guarantee program.

President Obama proposed trimming the Environmental Protection Agency’s fiscal 2013 budget by $105 million, marking the third time the administration has sought to cut the agency’s funding to compensate for rising deficit. The request would give the agency $8.3 billion, a 1.2 decrease from the $8.4 billion Congress provided in its omnibus spending package last year. The largest cuts would come from the Drinking Water and Clean Water State Revolving Funds.

The FY2013 budget proposal for the Agriculture Department provides $6.1 billion in direct loans, for energy initiatives, through the Rural Utilities Service program. Up to $2 billion would be used to help reduce carbon dioxide emissions from fossil fuel power plants, with the balance being used to support rural renewable energy generation, transmission, and distribution.

Though approval of any budget may need to wait until the lame duck session at the end of the year Senate Majority Leader Harry Reid (D-NV) has told Senate appropriators to be ready with fiscal year 2013 bills soon, as he may have to fill floor time this summer with funding or Law of the Sea Treaty debates.

In addition to the budget, the other big piece of congressional action last week occurred February 17 when both houses voted to pass legislation extending a 2 percentage point cut in the employee side of the payroll tax cut through the end of 2012 and repealing billions of dollars in recent changes to corporate estimated tax payments. The House voted 293-132 to pass the bill (H.R. 3630), and the Senate followed soon thereafter to approve the measure on a 60-36 vote. The bill’s passage is particularly significant because lawmakers on both sides of the aisle were forced to accept that it would be politically impossible to find $93.2 billion in acceptable offsets to pay for the payroll tax portion of the bill before the March 1 expiration. The bill also extends federal unemployment insurance benefits and the doc fix, but does not include extensions of any other popular expired or expiring tax breaks, including the 1603 grants in lieu of tax credits program or the production tax credit.

In other news, Speaker of the House John Boehner announced last week that he would delay a vote on the $260 billion energy and transportation bill until after the Presidents’ Day recess. Part of the delay is in the need to find new offsets, as the payroll tax cut deal uses the reduction in pension benefits that was in the highway bill. Speaker Boehner also acknowledged that some members of his caucus have concerns with the plan, and with few Democrats likely to support the legislation, Republicans might not have had the votes. On the other hand, the House passed a plan, 237-187, February 16 to approve the Keystone XL pipeline and expand drilling offshore and in ANWR. Acting on one portion of the much larger transportation and infrastructure strategy, the House also approved amendments directing 80 percent of Clean Water Act citations over the BP oil spill to Gulf restoration efforts, approving a geothermal exploration project, and quickening environmental reviews for renewable energy projects on public lands. Despite roadblocks, including the introduction of many amendments, Senate Democrats vowed last week to finish work on their highway bill (the Moving Ahead for Progress in the 21st Century Act, S. 1813) after they return from the Presidents’ Day recess.

Congress

Solyndra Subpoenas

After spending the last week threatening to subpoena senior White House officials as part of an investigation of loan guarantees for Solyndra, House Republicans cancelled a February 17 Energy and Commerce Subcommittee on Oversight and Investigations vote to authorize the subpoenas. The group reached a deal to have some of the officials answer questions instead.

CES Forthcoming

Senate Energy and Natural Resources Chairman Jeff Bingaman (D-NM) will introduce legislation setting a national clean energy standard during the week of February 27. The senator is also likely to introduce at some point this session an industrial energy efficiency bill similar to legislation (S. 1639) that he has previously introduced.

Senators Send Energy Tax Letter

Senators Olympia Snowe (R-ME), Jeff Bingaman (D-NM), Dianne Feinstein (D-CA), John Kerry (D-MA), Maria Cantwell (D-WA), and Tom Carper (D-DE) sent a letter to Treasury Secretary Tim Geithner and Acting Director of the Office of Management and Budget Jeffrey Zients February 10 encouraging them to advance tax policies that improve energy efficiency and support clean energy incentives. Specifically, the senators asked the administration to include a performance based residential energy efficiency tax credit, an extension of the new energy efficient homes tax credit, and the simplification of the energy efficient commercial building deduction in the president’s budget request for fiscal year 2013. The group also asked that the administration work with them to develop a set of policies that offers long-term support to the clean energy and energy efficiency sectors, are fiscally responsible, and maintain clean energy jobs in the US.

Inquiry Into Solyndra Aspects of Prologis Conditional Loan Guarantee

On February 17, House Energy and Commerce Committee Chairman Fred Upton (R-MI) and Rep. Cliff Stearns (R-FL), head of the oversight subcommittee, are launching an inquiry into the conditional approval of Prologis Inc.’s $1.4 billion loan guarantee for its Project Amp which involved installing Solyndra solar panels, despite concerns of Solyndra’s viability.DOE then issued a statement defending the Prologis loan guarantee.

Legislation Introduced

Senator David Vitter (R-LA) introduced legislation (S. 2100) February 13 to suspend sales of petroleum products from the Strategic Petroleum Reserve until certain conditions are met.

Congressman Charlie Bass (R-NH) introduced the Smart Energy Act (H.R. 4017) February 15 to spur innovations in energy efficiency technology by targeting the federal government’s energy usage and by providing more opportunities for private industry to use energy efficient technologies and systems.

The same day, Representative Ed Markey introduced three pieces of legislation (H.R. 4024, H.R. 4025, and H.R. 4026) to suspend approval of liquefied natural gas export terminals; allow the Secretary of Interior to accept bids on new oil and gas leases on Federal lands only from bidders certifying that all natural gas produced pursuant from such leases be offered for sale in the United States; and to reauthorize the Low-Income Home Energy Assistance Program for fiscal years 2013 through 2016.

Administration

Chinese VP Visit

President Obama and Vice President Joe Biden met with Chinese Vice President Xi Jinping February 14 to discuss a wide range of issues the two countries share. Speaking at a lunch at the State Department, the vice president praised cooperation taking place between the two countries, but also added that it can only be “mutually beneficial if the game is fair,” listing areas of tension in the relationship including intellectual property rights, trade, Chinese currency manipulation, technology transfer, and an uneven competitive playing field.

Department of Agriculture

Ethanol Production

Agriculture Secretary Tom Vilsack told the Senate Agriculture, Nutrition, and Forestry Committee February 15 that domestic production of corn ethanol is fast approaching the 15 billion gallon annual gap set by the 2007 renewable fuel standard, but that achieving an even larger quota for non-corn-based advanced biofuels will require a concerted federal effort. He said that without significant progress on the advanced biofuels, it will be impossible to reach the 36 billion gallon total biofuel requirement by 2022. Secretary Vilsack also reiterated that the United States has the potential to produce more than a billion tons of biomass each year to be used for fuel, electricity generation, and other energy applications by mid-century without harming farm and forestry products, and a billion tons of biomass contains energy equal to 30 percent of current annual domestic petroleum consumption. The USDA is hoping to hasten advances in non-ethanol biofuels through programs such as the Biomass Research and Development Initiative, which funds studies on harvesting, transporting, and storing raw feedstock for later conversion to biofuels.

Crop Insurance Cuts Defended

Agriculture Secretary Tom Vilsack appeared before the Senate Agriculture Committee February 15 for the first of several farm bill hearings this year. During the hearing, he defended proposed cuts to crop insurance, saying they were necessary to preserve nutrition funding. The committee will hold its next farm bill hearing February 28 to focus on conservation programs.

Ethanol Group Asks for Tax Provisions in Farm Bill

In a February 14 letter to Senators Debbie Stabenow (D-MI) and Pat Roberts (R-KS), chairwoman and ranking member of the Senate Committee on Agriculture, the Advanced Ethanol Council asked that the farm bill for 2012 include an extension of both the Cellulosic Biofuels Producer Tax Credit and the Special Depreciation Allowance for Cellulosic Biofuel Plant Property. The letter was sent as the committee continues work on a farm bill and a hearing specifically on farm bill related energy issues.

Department of Commerce

Satellites Top Priority

National Oceanic and Atmospheric Administrator Jane Lubchenco said February 16 that satellites to monitor weather and climate are the highest administration funding priority for fiscal year 2013. About $1.8 billion of the agency’s $5 billion budget would be used for polar orbiting and geostationary weather satellite systems as well as satellite systems for measuring sea level and potentially damaging storms. A portion of the agency’s more than $500 million research and development budget would fund Arctic research on climate change projections as well as marine sensor technologies to monitor and address algal blooms and ocean acidification.

Department of Defense

Army Corps to Streamline Renewable Permitting Structure

On February 21, in a scheduled Federal Register notice, the U.S. Army Corps of Engineers will issue two new nationwide permits, NWP 51 and NWP 52, authorizing land- and water-based renewable energy projects while also reissuing 48 existing permits. The permits will reduce the number of renewable energy generation projects that need Section 404 individual permits, with NWP 51 covering all components of land-based generation and NWP 52 covering water-based hydrokinetic and wind projects.

Department of Energy

$6.5 Million for Tribal Energy

On February 16, Energy Secretary Steven Chu awarded $6.5 million to 19 tribal clean energy projects as part of the administration’s commitment to strengthening partnerships with Tribal Nations and supporting tribal energy development. The competitively selected projects will allow tribes to advance clean energy within their communities by assessing local energy resources, developing renewable energy projects, and deploying clean energy technologies while saving money and creating new jobs.

Water Heater Plant Opens

The Department of Energy applauded the opening of General Electric Appliance’s new revitalized manufacturing facility in Louisville, KY, February 15, that will produce its highly efficient new water heaters. The company moved the operation from China, where it had been producing a former version of the appliance, to the newly opened plant – the first to open in the Appliance Park in over 50 years. The plant revitalization was partially funded through a $24.8 million manufacturing tax credit.

Efficient Lighting Standards

The Department of Energy’s Commercial Building Energy Alliances announced February 15 new voluntary energy-saving specifications for lighting troffers – rectangular overhead fixtures used in commercial buildings – and parking lot and structure lighting. The specification provides minimum performance levels for LED and fluorescent troffers used in commercial buildings, delivering energy savings of 15 to 45 percent. It also sets an optional section on lighting controls, which can increase savings up to 75 percent.

$1.3 Million for Efficiency Training

The Energy Department and the Department of Commerce’s National Institute of Standards and Technology Manufacturing Partnership Program announced February 16 up to $1.3 million for training programs to provide commercial building professionals with critical skills needed to optimize building efficiency, reduce waste, and save money. The programs will help to reach the Better Buildings Initiative goal of improving energy efficiency nationwide in commercial and industrial buildings by 20% by 2020. Applications are due March 30.

Efficiency Data Centers Webcast

The Department of Energy’s Federal Energy Management Program will present a live webcast March 1 titled Achieving Energy Efficient Data Centers with New ASHRAE Thermal Guidelines. The session will benefit professionals interested in operating data centers at wider environmental ranges and greater efficiencies to reduce energy, capital, and maintenance costs.

Department of Interior

Budget Request Defended

During a February 15 hearing before the House Natural Resources Committee, Interior Secretary Ken Salazar defended the agency’s energy regulations and efforts to balance development of energy and water resources. The agency’s strategy would prepare for new rules on oil and gas drilling, less oil shale leasing, and ecosystem conservation plans.

Department of State

Short Lived Pollutants Coalition

Secretary of State Hillary Clinton announced February 16 that she would joint with Environmental Protection Administrator Lisa Jackson and ministers from Bangladesh, Canada, Mexico, Sweden, and Ghana to announce a coalition dedicated to reducing short-lived climate pollutants. These pollutants include methane, hydrofluorocarbons, and black carbon. Studies have shown that inexpensive controls on methane, HFCs and black carbon could cut half a degree Celsius from the projected global temperature increase by 2030 and avoid millions of deaths annually during the same time frame. The head of the United Nations Environmental Programme will serve as the secretariat for the coalition – and other nations will have the opportunity to join at the next meeting of UNEP on April 23 in Stockholm. The Climate and Clean Air Coalition to Reduce Short Lived Climate Pollutants will have a first year budget of $5 million, and the U.S. has committed to contributing $12 million over the first two years of the effort. The coalition will seek to raise public awareness of short-lived climate pollutants and drive increased public and private mitigation efforts.

Environmental Protection Agency

E15 Progresses

Bringing it one step closer to legal domestic distribution, he Environmental Protection Agency announced February 17 that it had found that E15 caused no significant health effects. The agency approved the fuel for use in late model vehicles last year but has not yet completed final registration of the fuel as required under the Clean Air Act. The agency’s finding comes less than two weeks after the House Science, Space, and Technology Committee voted to require an additional 18 month study by the National Academy of Sciences before it could register the fuel blend for use in vehicles.

Comments to Backup Generating Engines Proposal

An Environmental Protection Agency proposal aimed at resolving a 2010 legal challenge brought by EnerNOC Inc. and EnergyConnect Inc. received numerous comments last week concluding that the plan to allow stationary engines generating electricity to quadruple their annual operations would increase air pollution and skew competition in electricity markets. Under the proposed settlement agreement, the agency would revise air toxics standards to allow reciprocating internal combustion engines to increase their demand response operations to 60 hours a year, up from 15 hours.

Mercury Standards

The Environmental Protection Agency published final mercury and air toxics standards for power plants February 16, and industry groups and states are expected to challenge the “appropriate and necessary” finding. Lawsuits must be filed in the U.S. Court of Appeals for the District of Columbia Circuit by April 16. Three suits were filed against the agency of the first day, by the National Mining Association, the National Black Chamber of Commerce, and White Stallion Energy Center. Additionally, Senator James Inhofe (R-OK) filed a disapproval resolution nullifying the agency’s mercury rule on February 16.

Comments on Vehicle Emission Rules

In comments received to proposals from the Environmental Protection Agency and the National Highway Traffic Safety Administration to set greenhouse gas emissions and fuel economy standards for model year 2017 through 2025, car manufacturers have expressed support for the rule, but expressed concern that they will not be able to sell the more expensive vehicles, and also suggested that the two agencies consider additional, periodic technical evaluations of the standards in addition to the planned midterm review. The final rules are expected in August.

Ethanol Exemption Arguments Heard

The U.S. Court of Appeals for the District of Columbia Circuit heard oral arguments February 13 in lawsuits challenging an Environmental Protection Agency rule exempting some ethanol facilities from a requirement to demonstrate that they reduce lifecycle greenhouse gases. A coalition of meat industry groups argued that removing the exemption would force some plants to close, reducing the demand for corn used to feed livestock. The Energy Independence and Security Act of 2007 only intended to exempt gas and biomass fired ethanol plants built between 2008 and 2009 from the 20 percent lifecycle standard for those two years, but the agency’s March 2010 rule implementing the renewable fuel standard made the exemption permanent.

Revised Recycling Rates

The Environmental Protection Agency revised last week its 2010 study of municipal solid waste generation, recycling, and disposal, using a more consistent methodology that brought the recycling rate of PET containers up from 21 to 29.2 percent and increased the national recycling rate to 34.1 percent. According to the revised analysis, the recycling rate of selected consumer electronics also fell from 26.6 percent to 19.6 percent.

Superfund Budget Request

The Environmental Protection Agency’s fiscal year 2013 budget request included a proposed $33 million cut, down to $532 million, for the remedial superfund program. This cut would halt new cleanups, create a backlog of 35 new construction projects, and hamper EPA’s ability to reach its goal of completing 93,400 superfund remedial site assessments by 2015. EPA requested $1.176 billion, $38 million less than last year, for the entire superfund program, including administration, research and technology development.

Activists File Suit Against EPA on Particulate Rule

On February 14, the American Lung Association and the National Parks Conservation Association filed a suit in the U.S. District Court for the District of Columbia seeking to compel the Environmental Protection Agency to conduct a five-year review of the national ambient air quality standards for fine particulate matter in line with existing deadlines. The rule setsthe standard for fine particles, 2.5 microns in diameter and smaller, and this challenge follows a similar suit recently filed by a coalition of 11 states. The suit asks for an order compelling EPA to complete the required review no later than Oct. 15, 2012.

Briefing Seeks to Vacate CSAPR

On February 14, the San Miguel Electric Cooperative Inc., along with Industrial Energy Consumers of America, the Southeastern Legal Foundation Inc., and Putnam County, GA, filed a brief asking the U.S. Court of Appeals for the District of Columbia Circuitto vacate the Environmental Protection Agency’s Cross-State Air Pollution Rule on the grounds that the agency has done an insufficient evaluation of how various power plant emissions regulations will affect compliance options. The briefing argues that EPA did not address the effects of an unreliable electric grid on communities’ health and welfare.

Navistar to Appeal Heavy Duty Diesel Engine Ruling

On February 17, Navistar Inc., filing in the U.S. Court of Appeals for the District of Columbia Circuit, appealed a federal court’s dismissal of Navistar’s suit seeking to compel the Environmental Protection Agency to recall certain heavy-duty diesel engines from model-year 2010.

Nuclear Regulatory Commission

Challenge to Plant Approval Dismissed

On February 17, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit dismissed a petition by the Blue Ridge Environmental Defense League asking that the court review internal documents related to the Nuclear Regulatory Commission’s decision to reinstate construction permits for the Tennessee Valley Authority’s Bellefonte Units 1 and 2 in Alabama. The court said it did not have the authority to review internal documents related to the NRC approving TVA’s request to reinstate the plants’ construction permits in March 2009. Based on current economic conditions and new EPA regulations, TVA decided to resume building the 1,260 MW Bellefonte Unit 1 at a cost of $4.9 billion and an estimated completion date sometime between 2018 and 2020.

States

NY Fracking Bills

The New York State Legislature is considering bills to limit fracking in natural gas drilling while the Department of Environmental Conservation prepares to issue final rules to control the practice. More than two dozen bills on fracking have been introduced in the current legislative session, including measures to ban or place a temporary moratorium on fracking, grant local governments authority to prohibit fracking, and permit fracking waste to be classified as hazardous.

CA Office Supports Cap and Trade

The California Legislative Analyst’s Office released a report February 9 supporting the design of the state’s economywide greenhouse gas emissions trading program while offering suggestions to improve the operation of the program. The report concluded that in designing the program, the California Air Resources Board made a reasonable effort to balance the policy tradeoffs inherent in programs involving emissions leakage, offset credits, enforcement, and market volatility and oversight, and recommended changes that would shift the liability for failed offset credits from users to producers of the offset projects and eliminate holding limits on allocations.

Cape Wind PPA

On February 15, as part of the proposed merger agreement between utility companies Northeast Utilities and NSTAR, the Massachusetts government is requiring the merged entity to enter into a 15-year contract to purchase 27.5% of the proposed Cape Wind’s electricity. The whole agreement must be approved by the Massachusetts and Connecticut governments, with decisions expected in April, and the merger’s Cape Wind provision is contingent on the project breaking ground by 2016. The 130-turbine project is expected to produce up to 468MW of energy once fully operational.

State Renewable Portfolio Standards Driving Industry

On February 15, panelists participating in a webinar hosted by the American Council on Renewable Energy concluded that state renewable portfolio standards were currently driving the renewable energy industry, but even that may be insufficient to ensure the industry’s survival in the next decades in the face of expiring tax provisions at the federal level and the loss of Treasury’s cash grant program.

International

EU ETS Aviation List Updated

The European Commission published an updated list February 11 of airlines and aviation companies subject to the European Union’s Emissions Trading System for greenhouse gases. The new list includes Norway and Iceland as program participants. On February 16, the Commission found that the revisions would be considered only if European Union member states indicate that they are likely to back the changes.

 UN Secretary General Urges Focus on Sustainability in Business

On February 14, U.N. Secretary-General Ban Ki-moon, in a speech at the opening of a three-day global summit of business leaders preparing for theRio+20conference in Brazil in June, asked that the world’s business community should do more to promote sustainability and to work with U.N. programs of that nature like the Global Compact corporate responsibility initiative. He also suggested that as many representatives of the business community as possible join the Corporate Sustainability Forum, to be held on the sidelines of Rio+20, exploring innovative public-private sustainability partnerships. 

EU Ship Fuel Standards

On February 16, the European Parliament’s environment committee voted 48–15 to follow the United State’s example and surpass International Maritime Organization standards by only permitting ships using fuel with very low levels of sulfur. Since January 2012, the IMO has restricted sulfur in marine fuel to 3.5%, with the limit scheduled to decrease to 0.1% for sensitive “sulfur emission control areas” (SECAs) in 2015 and to 0.5% for all areas in 2020. Under this proposal, the EU would pursue the same strategy as the US, which has surpassed the IMO regulations by designating most of the water within 200 miles of the national shoreline as SECA. The committee approved the draft legislation, proposed by the Commission in July 2011, and it will become final once the European Parliament, scheduled to vote on the measure in May, and the EU Council agree on the regulations.

Mexican Climate Initiatives

Mexican President Felipe Calderón’s administration, via a 2007 climate change strategy and 2009’s Special Climate Change Program, is working to meet its 2020 target for a 30% reduction of carbon dioxide emissions from baseline projections. Mexico has minimum goals in place to cut 50 million metric tons annually in greenhouse gas emissions starting in 2012. Mexico is also aiming to increase its renewable power capacity to 5,700MW by 2017.

Miscellaneous

CCS Making GHG Progress

The Center for Climate and Energy Solutions released a study February 14 finding that projects that capture and store carbon dioxide emitted by coal-fired power plants and industrial processes are slowly making a dent in greenhouse gas emissions. The report, A Greenhouse Gas Accounting Framework for Carbon Capture and Storage Projects, concluded that the 15 large projects now either in operation or under construction around the world have the capacity to store more than 35 million tons of CO2 annually, and the center touted the report as the first comprehensive framework for calculating the degree to which such projects can actually reduce global emissions.

KPMG Report on Environmental Costs of Business

On February 14, KPMG released Expect the Unexpected: Building Business Value in a Changing World arguing that external environmental costs in 11 surveyed sectors rose from $566 billion in 2002 to $846 billion in 2010and those costs are doubling every 14 years. Climate change, water and energy scarcity, and volatile fuel prices will all drive up the cost of doing business while providing new business opportunities, according to the report.

Pacific Northwest Transportation & Climate Change Report

On February 3, the Region X Northwest Transportation Consortium released the report Climate Change Impact Assessment for Surface Transportation in the Pacific Northwest and Alaska evaluating potential impacts on Alaska and the Pacific Northwest’s transportation infrastructure from climate change, and suggesting possible adaption responses. The Consortium consists of the Alaska Department of Transportation & Public Facilities, Idaho Transportation Department, Oregon DOT, and Washington state DOT, as well as the University of Alaska Transportation Center, National Institute for Advanced Transportation Technology, OTREC, and TransNow. The report analyzed 5 pilot projects sponsored by the Federal Highway Administration that explore infrastructure vulnerability and risk assessment as well as a case study designed to identify Alaska, Idaho, Oregon, and Washington’s critical road, rail, and airport infrastructure.

ACEEE Study of Ratepayer Funding

The American Council for an Energy-Efficient Economy released a report called A National Survey of State Policies and Practices for the Evaluation of Ratepayer-Funded Energy Efficiency Programs analyzing the oversight of utilities’ ratepayer-funded energy efficiency programs in 44 states and the District of Columbia. Utilities oversee 37% of the programs, utilities and the utility regulatory commission together monitor the programs in 36% of the states, and the government or a third-party are responsible in the remaining 27%. Independent contractors or consultants conduct evaluation studies in 79% of the states, with the remaining 21% using utility or government agency staff. Among the surveyed states, 45% have statutory requirements for the evaluation of programs, with the same number relying on orders from regulatory commissions, and 10% have no formal policy requirement. The report also shows a range of 6 to 15 cents per kilowatt-hour for adding new electricity supply, but only a 1.6 to 3.3 cent per kilowatt-hour cost range for efficiency improvements. Per capita, Vermont and Massachusetts spend the most on energy efficiency at $58 per capita, whereas California spends $40, Connecticut $39, and Minnesota $38. The report called for evaluation and reporting guidelines and greater transparency, while stopping short of recommending a national standard given concerns about implementation, among other things.

University of Texas Fracking Study

On February 16, the Energy Institute at the University of Texas at Austin released a study finding that hydraulic fracturing has no direct connection to groundwater contamination and that many reports claiming fracking-related contamination involve the mishandling of fracking wastewater or above-ground spills. The Energy Institute had assistance from the Environmental Defense Fund in developing the study’s scope of work and methodology, but the study did not examine Environmental Protection Agency data related to a natural gas field in Pavillion, WY whose fracking activities the agency says is responsible for groundwater contamination.

©1994-2012 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

FAA Reauthorization Bill Passes with Union Restrictions Despite Objections from Labor Groups

The National Law Review recently published an article by MapLight regarding the FAA Reauthorization Bill:

Feb. 8, 2012 – Both the U.S. House of Representatives and the Senate agreed to the conference report on a bill that provides a long-term reauthorization of the Federal Aviation Administration (HR 658). The FAA has experienced over 20 short-term reauthorizations since September 2007. A main sticking point centered on labor issues — in particular, changes to the National Mediation Board that would make it more difficult for airline and railway workers to unionize.

On Feb. 3, the House agreed to the conference report by a vote of 248-169 while the Senate agreed on Feb. 6, by a vote of 75-20. The President is expected to sign the measure.

The measure was opposed by unions such as the Communications Workers of America, the International Association of Machinists and Aerospace Workers, and the International Brotherhood of Teamsters. The measure was supported by the Aerospace Industries Association, the Air Transport Association, and the Associated General Contractors of America. Air transportation unions were split on the issue: the Association of Professional Flight Attendants opposed the measure while the Air Line Pilots Association favored the bill overall, stating that although they “would have preferred that certain provisions unrelated to aviation safety had not been included, the compromise was necessary to set the stage for the passage of this extremely important funding bill.”

U.S. Senate

  • Interest groups that oppose this bill (Building trades unions, Teachers unions, Manufacturing unions, Railroad unions, etc.) gave 2.2 times as muchon average to Senators who voted ‘NO’ ($180,640) as they gave to Senators who voted ‘YES’ ($83,649).
  • Interest groups that support this bill (Public works, industrial & commercial construction, Builders associations, Aircraft manufacturers, Travel agents, etc.) gave 1.9 times as much on average to Senators who voted ‘YES’ ($134,065) as they gave to Senators who voted ‘NO’ ($71,362). 17 of the top 20 recipients of campaign contributions connected to interest groups that support this bill voted in favor of the measure.

U.S. House of Representatives

  • Interest groups that oppose this bill (Building trades unions, Teachers unions, Manufacturing unions, Railroad unions, etc.) gave 5.9 times as muchon average to House members who voted ‘NO’ ($100,072) as they gave to House members who voted ‘YES’ ($16,915). 18 of the top 20 recipients of campaign contributions connected to interest groups that oppose this bill voted against the measure.
  • Interest groups that support this bill (Public works, industrial & commercial construction, Builders associations, Aircraft manufacturers, Travel agents, etc.) gave 1.5 times as much on average to House members who voted ‘YES’ ($33,973) as they gave to House members who voted ‘NO’ ($21,984).

METHODOLOGY: MapLight analysis of reported contributions to congressional campaigns of senators in office on day of vote, from interest groups invested in the vote according to MapLight, July 1, 2005 – June 30, 2011 and House members in office on day of vote, from interest groups invested in the vote according to MapLight, July 1, 2009 – June 30, 2011. Campaign contributions data source:OpenSecrets.org

A link to this data release can be found here.

© Copyright 2012 MapLight