Names In the News

Wall Street Burns

Seventeen investment banks have agreed to pay about $140 million to the U.S. government to settle charges that they defrauded the federal government by overpricing securities sold in connection with certain municipal bond transactions. 

The scheme involved what has come to be known as "yield burning" and was first brought to the public's attention in 1995 by whistleblower Michael Lissack, who filed a "qui tam" lawsuit against more than a dozen Wall Street firms under the False Claims Act. 

Yield-burning occurs when an investment bank marks up the price of securities that it sells to a municipality in order to lower the return on those securities, so that the portfolio that is being sold complies with tax-law. The net effect of yield-burning is that money has been transferred from the federal government to the investment banker. 

The firms that were named in the lawsuits and the amounts they paid to settle the lawsuits included: Dain Rauscher Corp. -- $11 million; Salomon Smith Barney Inc. -- $38 million; CS First Boston Corp. -- almost $1 million; Dillon Read Securities Inc. -- $6.3 million; Goldman Sachs & Co. -- $5.1 million; PaineWebber Inc. -- $21.6 million; Prudential Securities Inc. -- $5.8 million; Morgan Stanley & Co. -- $2.5 million; Lehman Brothers Inc. -- $4.5 million; and Merrill Lynch Pierce Fenner & Smith Inc. -- $4.6 million.

"These investment firms not only stole money that belonged to the U.S. Treasury, they also clearly endangered the tax-exempt status of certain local government bond issues," says Erika A. Kelton of Phillips & Cohen, which represents Lissack. "The Wall Street defendants acted recklessly and against their clients' interests." 

When interest rates decline, advance refunding transactions are a popular way for state and local governments to lower their borrowing costs by refinancing their debt at lower interest rates. They purchase Treasury securities using the proceeds of tax-exempt advance refunding bonds. By law, their investments with those proceeds cannot earn higher aggregate yields than the yield earned on the bonds. Any excess profit must be paid to the federal government. By adding large price markups to Treasury securities purchased with bond proceeds, an investment broker could artificially depress, i.e., "burn" the yield and pocket the illegal profits.   

The Unfriendly Skies

The airline industry is dangerous for workers, said the nation's largest flight attendants union in April as it called for increased health and safety regulation. 

According to the Association of Flight Attendants, the airline industry's rate of recordable injuries and illnesses was 14.5 percent -- a rate significantly higher than injury rates in construction (8.8 percent), agriculture (7.9 percent), or mining (4.9 percent). 

A survey conducted by the Association of Flight Attendants of injury and illness logs at 11 U.S. airlines showed that out of 31,024 flight attendants, 10 percent reported an injury that required medical attention beyond first aid or caused them to lose time from work in 1998. 

Flight attendants suffer injuries related to operating poorly designed food and beverage carts, slipping on galley floors, handling or being struck by heavy carry-on baggage, falling on icy walkways, and sustaining cuts and burns from galley equipment and oven racks. 

The flight attendants are also concerned about radiation exposure, particularly this year when solar storms are to expected to reach a peak, and possible exposure to HIV and hepatitis since flight attendants must provide in-flight emergency medical treatment including mouth-to-mouth resuscitation and assistance during childbirth. 

Most U.S. workers are protected by standards set by the Occupational Safety and Health Administration (OSHA). But flight attendants are specifically excluded from OSHA coverage. In 1975, the FAA decreed that it, not OSHA, should have jurisdiction over health and safety of airline employees, according to Patricia Friend, president of the Flight Attendants Union. But since claiming jurisdiction, the FAA has "made little effort to institute health and safety standards for flight attendants," Friend says. 

"The FAA has issued a few weak health and safety regulations and a series of recommendations that carriers rarely meet because they are not under any pressure to do so," she says.

Prescription for Trouble

Drug companies are failing to conduct postmarketing research (Phase IV) studies required by law, according to data obtained from the Food and Drug Administration (FDA) through a Freedom of Information Act (FOIA) request filed by Public Citizen.

The FDA sometimes requires companies to perform safety and efficacy tests after a drug has been approved and frequently makes these postmarketing tests a condition for a drug's approval. An April Public Citizen study found that only 13 percent of 88 follow up studies required for drugs launched during the 1980s were completed. No studies were finished for 107 drugs that went on the market between January 1995 and December 1999. 

The report paints a "grim and dangerous picture," says Public Citizen's Dr. Sidney Wolfe. "Pharmaceutical companies are systematically failing to fulfill their commitments to the FDA." 

Wolfe says that the FDA should ask Congress for authority to impose large civil fines on companies that do not complete their required studies. Currently, the FDA has no civil fining authority.

-- Russell Mokhiber