History > 2009 > USA > Federal Department / Federal Justice (II)

Judge Rejects

Settlement Over Merrill Bonuses

September 15, 2009
The New York Times
By LOUISE STORY

A Federal District judge on Monday overturned a settlement between the Bank of America and the Securities and Exchange Commission over bonuses paid to Merrill Lynch executives just before the bank took over Merrill last year.

The $33 million settlement “does not comport with the most elementary notions of justice and morality,” wrote Jed S. Rakoff, the judge assigned to the case in federal court in Lower Manhattan.

The ruling directed both the agency and the bank to prepare for a possible trial that would begin no later than Feb. 1. The case involved $3.6 billion in bonuses that were paid by Merrill Lynch late last year, just as that firm was about to be merged with Bank of America. Neither company provided details of the bonuses to their shareholders, who voted on Dec. 5 to approve the merger.

The judge focused much of his criticism on the fact that the fine in the case would be paid by the bank’s shareholders, who were the ones that were supposed to have been injured by the lack of disclosure.

“It is quite something else for the very management that is accused of having lied to its shareholders to determine how much of those victims’ money should be used to make the case against the management go away,” the judge wrote.

Bank of America has argued in its filings with the judge that it did nothing wrong in its disclosures.

The judge also criticized the S.E.C., which has been trying to step up the profile of its investigations unit. The judge quoted Oscar Wilde’s “Lady Windermere’s Fan” in the end of his ruling to say that a cynic is someone “who knows the price of everything and the value of nothing.”

The proposed settlement, the judge continued, “suggests a rather cynical relationship between the parties: the S.E.C. gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger; the bank’s management gets to claim that they have been coerced into an onerous settlement by overzealous regulators. And all this is done at the expense, not only of the shareholders, but also of the truth.”

The case before Judge Rakoff is just one of several investigations into the bank’s deal with Merrill. Andrew M. Cuomo, the attorney general of New York, is also investigating the bank’s disclosures of bonuses and of Merrill’s surprise losses late last year. The House Committee on Government Oversight and Reform is also looking into the merger.

It is not the first time Judge Rakoff has ruffled feathers in the business world. In 2003, for example, he refused to approve what he saw as a low settlement the S.E.C. had negotiated with WorldCom, the phone company that collapsed in an $11 billion accounting fraud.

Rewarding — and punishing — the right parties was at the fore of the judge’s thinking in that case. Shareholders of WorldCom had already lost out. So when the judge forced the S.E.C. to increase the $500 million fine it was levying against WorldCom to $750 million, he also demanded that the money be paid out to the company’s shareholders, rather than to the agency.

    Judge Rejects Settlement Over Merrill Bonuses, NYT, 15.9.2009, http://www.nytimes.com/2009/09/15/business/15bank.html

State Discriminated Against Mentally Ill, Judge Rules

September 9, 2009
The New York Times
By JAMES BARRON

New York State had discriminated against thousands of mentally ill people by leaving them in privately run adult homes, which are usually larger than the disgraced psychiatric hospitals they were intended to replace, a federal judge ruled in a decision released on Tuesday morning.

Judge Nicholas G. Garaufis ruled that the state was violating the Americans with Disabilities Act by housing more than 4,300 mentally ill people in sprawling and often poorly run homes. He said the residents are essentially warehoused with little hope of mingling with others in the wider community.

Judge Garaufis wrote in a 210-page decision that the state had “denied thousands of individuals with mental illness in New York City the opportunity to receive services in the most integrated setting appropriate to their needs.” He also said the state had failed to show that reforms proposed by the nonprofit group that filed the case “would constitute a ‘fundamental alteration’ of the state’s mental health service system.”

“We’re thrilled,” said Cliff Zucker, executive director of Disability Advocates, the nonprofit legal services group that took the state to court . “This is an extraordinarily important decision that is going to improve the lives of 4,300 people who are now being warehoused in institutions unnecessarily.”

Disability Advocates had argued that many people in adult homes could be better served by living in their own apartments, at no greater expense to the state. The state had said that residents of adult homes already lived in an integrated setting.

The adult home system took shape in the 1960s and 1970s, when New York shut down large state-run psychiatric hospitals as part of what became known as deinstitutionalization. State officials turned to profit-making adult homes because little had been done to prepare for housing the patients once they had been discharged from the psychiatric wards. Federal disability money was to pay for the homes and the meals and activities they would provide. The homes were responsible for bringing in outside psychiatrists and doctors.

Disability Advocates filed the lawsuit in 2003 after a series in The New York Times described conditions in adult homes based on a review of more than 5,000 pages of annual state inspection reports and 200 interviews with workers, residents and family members. The Times’s investigation found a number of systemic problems, including untrained workers and gaps in supervision.

    State Discriminated Against Mentally Ill, Judge Rules, NYT, 9.9.2009, http://www.nytimes.com/2009/09/09/nyregion/09mental.html

Editorial

Reviving Civil Rights

September 2, 2009
The New York Times

Few parts of the federal government veered more radically off course in the Bush years than the Justice Department, including its vital civil rights division. Attorney General Eric Holder has made clear that he intends to put the division back on track. That will not be easy, but restoring the nation’s commitment to fairness in voting, employment, housing and other areas is one of the new administration’s most important challenges.

The Bush administration declared war on the whole idea of civil rights, in a way that no administration of either party had since the passage of the nation’s civil rights laws in the 1960s. It put a far-right ideologue in a top position at the civil rights division and, as the department’s inspector general said in a scathing report, he screened out job applicants with civil rights sympathies.

The division abandoned its “historic mission,” notes John Payton, director-counsel of the NAACP Legal Defense and Educational Fund — enforcing civil rights laws, in areas from housing to employment. In some cases, like voting rights, it aggressively fought on the anti-civil-rights side.

It is heartening that the Obama administration has proposed substantially increasing the number of lawyers in the division. They will have plenty of work.

On voting, the division needs to drop the Bush-era obsession with the overblown problem of vote fraud and put the emphasis back where it should be — making sure protected groups are not denied the right to vote. It has to ensure that the voter rolls are not being illegally purged, and that political operatives are not engaging in dirty tricks to suppress the minority vote. It also needs to make state and local governments comply with the “motor voter” law, which requires registration to be available at motor vehicle bureaus and welfare offices.

On employment discrimination, the division should once again start bringing the sort of high-impact cases that the Bush administration abandoned.

On discrimination in education, it has to navigate the bad decisions the Supreme Court has handed down recently and provide concrete guidance for school districts on how to legally promote integration.

Perhaps no group was more abandoned for the last eight years than prisoners. The division should challenge the dangerously crowded and inhumane conditions that are increasingly becoming the norm in the nation’s prisons and jails. As Wade Henderson of the Leadership Conference on Civil Rights notes, a few strong lawsuits of this kind could prod many institutions to reform voluntarily.

The division should also tackle predatory lending and other financial bias against minorities. With millions of Americans facing foreclosure, this sort of discrimination looms especially large.

The Justice Department has enormous power under Title VI of the Civil Rights Act of 1964 to combat discrimination in any institution or program that receives federal funds. This authority is more important than ever with federal stimulus money flowing. The division should use it to ensure that public schools, hospitals, transportation systems and other institutions do not discriminate.

Gay men and lesbians still largely stand outside the division’s protection. If a hate crime law covering them is passed soon, as appears likely, the division should use it aggressively. Mr. Holder should also press Congress to pass the first federal law against job discrimination based on sexual orientation.

This agenda would be difficult in the best of circumstances, but the civil rights division is working under the enormous handicap of being leaderless. Senate Republicans have put a hold on the nomination of Thomas Perez to head it. The reasons offered are spurious. Their real agenda seems to be impeding the division from doing its work. When Congress returns, Majority Leader Harry Reid should make sure Mr. Perez is quickly confirmed.

    Reviving Civil Rights, NYT, 2.9.2009, http://www.nytimes.com/2009/09/02/opinion/02wed1.html

Justice Dept. to Recharge Enforcement of Civil Rights

September 1, 2009
The New York Times
By CHARLIE SAVAGE

WASHINGTON — Seven months after taking office, Attorney General Eric H. Holder Jr. is reshaping the Justice Department’s Civil Rights Division by pushing it back into some of the most important areas of American political life, including voting rights, housing, employment, bank lending practices and redistricting after the 2010 census.

As part of this shift, the Obama administration is planning a major revival of high-impact civil rights enforcement against policies, in areas ranging from housing to hiring, where statistics show that minorities fare disproportionately poorly. President George W. Bush’s appointees had discouraged such tactics, preferring to focus on individual cases in which there is evidence of intentional discrimination.

To bolster a unit that has been battered by heavy turnover and a scandal over politically tinged hiring under the Bush administration, the Obama White House has also proposed a hiring spree that would swell the ranks of several hundred civil rights lawyers with more than 50 additional lawyers, a significant increase for a relatively small but powerful division of the government.

The division is “getting back to doing what it has traditionally done,” Mr. Holder said in an interview. “But it’s really only a start. I think the wounds that were inflicted on this division were deep, and it will take some time for them to fully heal.”

Few agencies are more engaged in the nation’s social and cultural debates than the Civil Rights Division, which was founded in 1957 to enforce anti-discrimination laws.

The division has been at the center of a number of controversies over the decades, serving as a proxy for disputes between liberals and conservatives in matters like school busing and affirmative action. When the Nixon administration took office, it sought to delay school desegregation plans reached under former President Lyndon B. Johnson. The Reagan administration dropped the division’s policy of opposing tax-exempt status for racially discriminatory private schools. And former President Bill Clinton withdrew his first nominee to lead the division, Lani Guinier, after her writings about racial quotas were criticized.

But such dust-ups were minor when compared with sweeping changes at the division under the Bush administration, longtime career civil rights lawyers say.

Now the changes that Mr. Holder is pushing through have led some conservatives, still stinging from accusations that the Bush appointees “politicized” the unit, to start throwing the same charge back at President Obama’s team.

The agency’s critics cite the downsizing of a voter intimidation case involving the New Black Panther Party, an investigation into whether an Arizona sheriff’s enforcement of immigration laws has discriminated against Hispanics, and the recent blocking of a new rule requiring Georgia voters to prove their citizenship. (Under the Bush administration, the division had signed off on a similar law requiring Georgia voters to furnish photographic identification, rejecting criticism that legitimate minority voters are disproportionately more likely not to have driver’s licenses or passports.)

Among the critics, Hans von Spakovsky, a former key Bush-era official at the division, has accused the Obama team of “nakedly political” maneuvers.

Tracy Schmaler, a Justice Department spokeswoman, rejected such criticism, saying those cases were decided “based on the facts and the law.”

Under the Bush administration, the agency shifted away from its traditional core focus on accusations of racial discrimination, channeling resources into areas like religious discrimination and human trafficking.

Department officials are working to avoid unleashing potential controversies as they rebuild the division’s more traditional efforts on behalf of minorities.

They are not planning to dismantle the new initiatives, rather to hire enough additional lawyers to do everything. The administration’s fiscal year 2010 budget request includes an increase of about $22 million for the division, an 18 percent increase from the 2009 budget. Other changes are already apparent.

The division has filed about 10 “friend of the court” briefs in private discrimination-related lawsuits since Mr. Obama’s inauguration, a practice that had dwindled in the previous administration.

In July, moreover, the division’s acting head, Loretta King, sent a memorandum to every federal agency urging more aggressive enforcement of regulations that forbid recipients of taxpayer money from policies that have a disparate impact on minorities.

The division has also lifted Bush-era rules that some career staff members saw as micromanagement or impediments, like restrictions on internal communications and a ban on front-line career lawyers’ making recommendations on whether to approve proposed changes to election laws.

Other changes from the Bush years may be harder to roll back. The division’s downgrading of the New Black Panther Party charges, which were filed in the final days of the Bush administration, has had rippling consequences. It apparently prompted Senate Republicans to put a hold on President Obama’s nominee to lead the division as assistant attorney general for civil rights, Thomas Perez.

The delay in Mr. Perez’s arrival, in turn, is stalling plans to review section managers installed by the Bush team, including several regarded with suspicion by civil rights advocacy groups. Under federal law, top-level career officials may not be transferred to other positions for the first 120 days after a new agency head is confirmed.

Bush-era changes to the division’s permanent rank may also have lingering effects. From 2003 to 2007, Bush political appointees blocked liberals from career jobs and promotions, which they steered to fellow conservatives, whom one such official privately described as “real Americans,” a department inspector general report found. The practice, which no previous administration had done, violated civil service laws, it said.

As morale plunged among veterans, turnover accelerated. The Obama transition team’s confidential report on the division, obtained by The New York Times, says 236 civil rights lawyers left from 2003 to 2007. (The division has about 350 lawyers.)

Many of their replacements had scant civil rights experience and were graduates of lower-ranked law schools. The transition report says the era of hiring such “inexperienced or poorly qualified” lawyers — who are now themselves protected by civil service laws — has left lasting damage.

“While some of the political hires have performed competently and a number of others have left, the net effect of the politicized hiring process and the brain drain is an attorney work force largely ill-equipped to handle the complex, big-impact litigation that should comprise a significant part” of the division’s docket, the transition report said.

At the end of the Bush administration, the attorney general at the time, Michael B. Mukasey, began to make changes intended to reduce political influence over entry-level career lawyer hiring. The Civil Rights Division is now seeking to expand those changes.

It is developing a new hiring policy under which panels of career employees — not political appointees — would decide both whom to hire and to promote for positions from interns to veteran lawyers. The policy could be completed as early as this month.

“We wanted to create a very transparent policy that will stand the test of time and ensure that we hire the best and brightest,” said Mark Kappelhoff, a longtime civil rights lawyer who is the division’s acting principal deputy assistant attorney general.

Some conservatives are skeptical that such a policy will keep politics out of hiring, however. Robert Driscoll, a division political appointee from 2001 to 2003, said career civil rights lawyers are “overwhelmingly left-leaning” and will favor liberals.

“If you are the Obama administration and you allow the career staff to do all the hiring, you will get the same people you would probably get if you did it yourself,” he said. “In some ways, it’s a masterstroke by them.”

Mr. Holder has elsewhere called for social changes with civil rights overtones, like the passage of a federal hate-crimes law, the elimination of the sentencing disparity between crack and powder cocaine and greater financing for indigent defense.

By contrast, he described his Civil Rights Division efforts as more restoration than change. The recent moves, he argued, are a return to its basic approach under presidents of both parties — despite some policy shifts between Republican and Democratic administrations — before the “sea change” and “aberration” of the Bush years.

“Of course there are going to be critics,” Mr. Holder said. But, he argued, “any objective observer” would see the recent approach as consistent with “the historical mission of the division, not straying into some kind of liberal orthodoxy. It really is just a function of enforcing the statutes.”

Justice Dept. to Recharge Enforcement of Civil Rights, NYT, 1.9.2009, http://www.nytimes.com/2009/09/01/us/politics/01rights.html