United States: State AGs In The News - January 28th, 2016

Last Updated: February 3 2016
Article by Aaron R. Lancaster and Erik Lowe

Campaign Finance

Washington AG Continues Pursuit of Trade Group for Alleged Campaign Subterfuge

  • Washington AG Bob Ferguson is seeking summary judgment and an order to lift the protective order over the documents filed in his case against the Grocery Manufacturers Association (GMA) on claims that the group intentionally disguised efforts to fund a campaign against a state initiative to require labels for genetically engineered food.
  • The complaint, filed in 2013 in state Superior Court, alleged that GMA violated Washington campaign finance disclosure laws by placing over $11 million solicited from its members into a separate "Defense of Brands" account, which it then deployed to oppose the labeling initiative—all without registering with the Public Disclosure Commission, or providing information on individual contributors.
  • The issue of mandated donor disclosure for nonprofits engaging in state political activity is growing. The Ninth Circuit recently overturned an injunction preventing the California AG from implementing her policy of requiring nonprofit organizations to provide a list of their individual donors in order to ensure that charities are not engaging in unfair business practices. Yet critics continue to call such policies a back door around the Supreme Court decision in Citizens United, and a burden on First Amendment rights.

Consumer Protection

FTC Files Lawsuit Against For-Profit College

  • The Federal Trade Commission (FTC) has filed a complaint in federal court, alleging that DeVry Education Group, Inc. misled consumers with advertisements disseminated through television, radio, online, print, and other media in violation of the FTC Act.
  • In the complaint, the FTC claims that DeVry lacked a reasonable basis to substantiate the following two claims:
    • "90% of DeVry University graduates from all programs who actively sought employment had careers in their field within six months of graduation."
    • "One year after graduation, DeVry University grads report earning 15% more than the median earnings reported by all other bachelor's degree candidates."
  • The FTC argued that there are multiple deceptive issues inherent in DeVry's calculations, including DeVry's inclusion of graduates who remained employed in jobs they held prior to enrolling at DeVry, DeVry's exclusion of graduates based on a narrow determination of what it means to be "actively" seeking employment, and DeVry's use of only self-reported salaries from 620 DeVry graduates admittedly not representative of its graduates who did not report salaries.
  • The FTC is seeking an injunction as well as rescission, restitution, refund of monies paid, and the disgorgement of ill-gotten monies. However, this industry is facing an uncertain future, and as indicated in a separate statement by Commissioner Ohlhausen, and in light of the effects of prior enforcement actions against other for-profit colleges, the FTC may need to balance its enforcement efforts in light of the interests of current DeVry students.

NYC Consumer Affairs Points Lens at Hackable Baby Monitors

  • The New York City Department of Consumer Affairs (DCA) appears to be joining the efforts of state and federal regulators to protect consumers' online privacy, in this case, through the security of baby monitors.
  • In the wake of FTC warnings, recent articles, and online videos demonstrating the ease of hacking baby monitors, the DCA indicated that it had issued subpoenas to several major manufacturers of video monitors claiming their devices to be secure.
  • As the "Internet of Things" spreads to increasing numbers of household items, the role of state, and even local, consumer protection departments in securing consumer online privacy will likely continue to grow.

False Claims Act

New York AG Resolves FCA Lawsuit

  • New York AG Eric Schneiderman reached a settlement with CenterLight Healthcare and CenterLight Health System, under which the health care provider agreed to pay $46.8 million (of which $28 million will go to New York) to resolve the state's investigation and federal whistleblower lawsuit alleging violations of state and federal false claims acts
  • CenterLight received monthly capitation payments of approximately $3,800 for each member, and in turn provided community-based health care to assist with the activities of daily living, including care management services, skilled nursing services, physical therapy, occupational therapy, speech therapy, and preventive services. However, in order to be eligible for this type of long-term care, Medicaid beneficiaries must meet certain requirements.
  • In the Order of Settlement, CenterLight admitted that 1241 of its members receiving managed long-term care were ineligible either because they had been referred to long-term care by social adult day care centers (SADDCs), or had needs that did not qualify under the criteria for managed care. In addition to the monetary aspect, CenterLight also agreed to reduce its reliance on enrolling members through SADCCs, and to implement a more robust compliance monitoring and certification program.

Financial Industry

DOJ Wraps Up Swiss Bank Program

  • The Department of Justice (DOJ) reached an agreement with Swiss bank HSZH Verwaltungs AG, under which the bank will pay $49 million, disclose accounts held by U.S. taxpayers, and cooperate in any related criminal or civil proceedings in exchange for the DOJ's vow of non-prosecution.
  • HSZH is the final (out of 80) Category 2 bank to reach a non-prosecution agreement as part of the DOJ's efforts to combat offshore tax evasion through its Swiss Bank Program. The next step for Swiss banks, and all foreign financial institutions seeking to comply with the U.S. Foreign Account Tax Compliance Act (FATCA), will be to search for indicia indicating that accounts are held or controlled by a U.S. person, and to report those assets to the U.S. Department of the Treasury.
  • At the same time that the DOJ is winding up this phase of its global tax evasion efforts, a group of 97 countries is implementing the newer, and stricter, disclosure standards propagated by the Organization for Economic Cooperation and Development (OECD). The U.S., however, has not yet joined that effort. As commentators indicate, the combined effect of FATCA and the OECD's efforts on foreign banks may actually be driving foreign money into accounts in such exotic tax havens as Nevada, Wyoming, and South Dakota.

States v. Federal Government

FERC Wins at Supreme Court

  • The U.S. Supreme Court has ruled in favor of the Federal Energy Regulatory Commission (FERC) and EnerNOC, Inc. in a dispute over Order 745, which outlined FERC's interpretation of its authority under the Federal Power Act (FPA) to regulate wholesale electricity providers. Order 745 purported to allow wholesale electricity suppliers (like EnerNOC) to pay commercial end-users to reduce their electricity consumption during hours of peak usage. The model allows for overall cost savings in the wholesale market as the wholesalers would ultimately purchase electricity at a lower rate to supply the users during off-peak hours.
  • A group of states and power generators had argued that the new "demand response" or "pay-to-abstain" model expressed through Order 745 amounted to FERC's regulation of retail prices—an authority that has been reserved for state-level utility commissions. The U.S. Court of Appeals for the District of Columbia Circuit agreed with the states and power generators on that point, and ruled that Order 745 exceeded FERC's authority under the FPA.
  • The Supreme Court reversed the DC Circuit in a 6-2 decision, and held that the FPA authorizes FERC to use a demand response model. The Court noted that FERC does not regulate the retail market simply because its actions in the wholesale market would have effects on retail prices. The Court highlighted the power generators' own admission, that state-level regulators would not have the authority to implement a demand response policy, to further bolster its holding that the FPA gives such authority to FERC.

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