Thousands of small-business loans may have been fraudulent, U.S. House panel finds

By Susan Cornwell and David Morgan

WASHINGTON (Reuters) – Tens of thousands of loans worth billions of dollars may have been subject to fraud, waste and abuse in the $659 billion taxpayer-funded Paycheck Protection Program (PPP) aimed at helping small U.S. businesses survive the coronavirus pandemic, according to a report released by Democratic lawmakers on Tuesday.

Over $1 billion went to companies that received multiple loans, in violation of the program’s rules, the House of Representatives Select Subcommittee on the Coronavirus Crisis said.

At an afternoon hearing, the panel’s chairman, Democratic Representative James Clyburn, chided Treasury Secretary Steven Mnuchin for saying previously that delivering aid quickly made it inevitable for Treasury to run into issues of waste.

“That is a false dichotomy. Taxpayers should not have to choose between quickly getting aid to those who need it and wasting federal funds. And there are simple steps that could have been taken to improve oversight and reduce fraud,” Clyburn said.

Democrats in Congress and the Trump administration have been at loggerheads since July over further steps to bolster the economy after Congress approved trillions of dollars in March to respond to the coronavirus pandemic.

“We are sensitive to the fact that there is more work to be done and certain areas of the economy require additional relief,” Mnuchin told the committee.

The PPP provided more than 5.2 million forgivable loans through the U.S. Small Business Administration (SBA) by the time it ended on Aug. 8.

The SBA did not immediately respond to requests for comment.

The Trump administration says the PPP has saved some 51 million jobs at a time when much of the U.S. economy has been shuttered due to the coronavirus.

Economists say the actual impact is far lower, likely between 1 million and 14 million jobs.

Republicans on the committee issued their own report saying the small business loan program had avoided fraud to the extent that is typical with other large government relief programs, such as those following Hurricanes Sandy and Katrina.

The Democratic-led panel found more than 600 loans went to companies that should have been ineligible because they had been barred from doing business with the government. Another 350 loans went to contractors with previous performance problems.

Nearly $3 billion went to businesses that were flagged as potentially problematic by a government-contracting database.

Staff found evidence that as few as 12 percent of Black and Hispanic business owners received the full funding they requested.

The SBA’s internal watchdog has also found “strong indicators” of potential PPP fraud.

(Reporting by Susan Cornwell and David Morgan; Editing by Andy Sullivan, Chizu Nomiyama, Steve Orlofsky and Richard Chang)

Ballot drop boxes are latest battleground in U.S. election fight

By Andy Sullivan and Jarrett Renshaw

(Reuters) – Welcome to the latest partisan flash point in the U.S. presidential election: the ballot drop box.

As U.S. election officials gird for a dramatic expansion of mail voting in the Nov. 3 election, Democrats across the country are promoting drop boxes as a convenient and reliable option for voters who don’t want to entrust their ballots to the U.S. Postal Service.

President Donald Trump’s re-election campaign, meanwhile, has sued to prevent their use in Pennsylvania, a key battleground state, alleging that the receptacles could enable voting fraud.

Republican officials in other states have prevented their use. Tennessee Secretary of State Tre Hargett told a U.S. Senate committee in July that drop boxes could enable people to violate a state law against collecting ballots.

In Missouri, Republican Secretary of State Jay Ashcroft decided not to distribute 80 drop boxes he had purchased because state law requires those ballots to be returned by mail.

“We didn’t want to cause confusion with voters,” spokeswoman Maura Browning said.

Drop boxes have taken on new urgency after cost-cutting measures at the U.S. Postal Service slowed mail delivery nationwide and Trump has repeatedly attacked the legitimacy of mail ballots. Polls show the Republican president trailing Democratic challenger Joe Biden in a race that some experts say could see half of all votes cast absentee.

Some say the drop box battle is a lot of fuss over a piece of civic furniture — typically a heavily constructed metal box placed in a public location, often monitored by video.

In Connecticut, Secretary of State Denise Merrill is recommending that voters return their ballots via drop box rather than through the mail for the November election, after receiving reports that some ballots mailed a week before the state’s Aug. 11 nominating contests arrived too late to be counted.

Three-quarters of ballots in that August primary were cast absentee, she said, up from roughly 4% in prior years. Merrill, a Democrat, said the state’s 200 newly installed drop boxes had proven a safe and popular option.

“I do not understand why people think they’re such a problem,” Merrill said. “They’re more secure than mailboxes.”

Republicans in Pennsylvania don’t share that sentiment. Trump won that competitive state by less than 1 percentage point in 2016. Winning there again could prove pivotal in his quest to secure a second term in office.

The Trump campaign is suing to force the state to pull all drop boxes used in the June primary. It argues that people could drop off multiple ballots in boxes that are unstaffed, which is an illegal practice in Pennsylvania. State officials “have exponentially enhanced the threat that fraudulent or otherwise ineligible ballots will be cast and counted,” the lawsuit states.

The Trump campaign said in a court filing on Saturday that it had complied with a judge’s order to provide evidence of alleged fraud to the defendants. That evidence has not been made public. Trump lawyers did not respond to a request by Reuters to see it.

Bruce Marks, a former Republican state senator in Pennsylvania, said drop boxes do not provide a clear chain of custody for the ballots deposited inside.

“There’s no one watching or tracking,” he said.

Proponents say stuffing a ballot into a locked drop box is no different from dropping one into a Postal Service letter box. Pennsylvania Republicans oppose drop boxes because Democrats have had much more success in getting their voters to sign up for mail ballots this year, greater than a two-to-on margin, said Brendan Welch, a spokesman for the Pennsylvania Democratic Party.

“(Republicans) know the easier it is for everyday people to vote, the more likely it is that they will lose,” Welch said. “Maybe they should spend their energy trying to match Pennsylvania Democrats’ organizing efforts in the Keystone State instead.”

Democratic Governor Tom Wolf has defended Pennsylvania’s use of drop boxes, arguing they are legal and essential, particularly in the age of the coronavirus.

ONE BOX, 864,000 VOTERS

In neighboring Ohio, Republican Secretary of State Frank LaRose said last week that he did not want to risk a similar lawsuit as he announced that he would authorize one drop box for each of the state’s 88 counties. He said the Republican-controlled legislature had not given him the authority to provide more.

Democrats are pressing LaRose to revise his decision, pointing out that it leaves the 864,000 registered voters of Cleveland’s Cuyahoga County, a Democratic stronghold, with the same number of drop boxes as the 8,400 registered voters of Republican Vinton County.

“You can’t have a one-size-fits-all approach with our counties,” said Kathleen Clyde, a senior adviser for the Biden campaign in Ohio. “One drop box doesn’t cut it.”

LaRose in the meantime is trying to secure prepaid postage for mail ballots, spokeswoman Maggie Sheehan said, “effectively making every mailbox its own drop box.”

Michigan, another battleground state, has added drop boxes this year.

Wisconsin’s five largest cities, including Milwaukee, are setting up drop boxes as part of a secure-voting plan funded by the Center for Tech and Civic Life, a nonprofit group.

In hotly contested Florida, Democrats in Miami-Dade County, the state’s largest, are seeking to remove some procedural hurdles to make it easier for voters to use drop boxes.

Unlike other counties in the state, Miami-Dade voters must provide election officials with valid identification when dropping off a ballot at a drop box. Election workers also manually record a 14-digit number printed on the voter’s envelope into a log.

The whole process can take up to three minutes, the Democratic Party said in a letter to local election officials seeking to allow voters to drop their ballots quickly without the processing requirements.

“Trump has sabotaged the post office deliberately and we have to find ways around that. We think making it easier to use a drop box, and avoid the post office, is part of the solution,” said Steve Simeonidis, chairman of the Miami-Dade Democratic Party.

The White House has said Trump never told the Postal Service to change its operations.

NOT TENSE EVERYWHERE

Security measures required for ballot drop boxes vary by state. In Montana, these receptacles must be staffed by at least two election officials, while in New Mexico they must be monitored by video, according to the National Conference of State Legislatures.

Before 2020, eight states — Arizona, California, Colorado, Hawaii, Montana, New Mexico, Oregon and Washington — had laws detailing how and where drop boxes could be used.

Returning ballots this way proved popular: In Colorado, Oregon and Washington, more than half of mail ballots were returned either to a drop box or to an election office in the 2016 presidential election, according to a Massachusetts Institute of Technology survey.

Drop boxes haven’t been controversial in those states.

“Both parties use it at a really high rate, so a lot of those tensions don’t exist here,” said Murphy Bannerman of Election Protection Arizona, a nonpartisan voting-rights group.

(Reporting by Andy Sullivan in Washington and Jarrett Renshaw in Philadelphia; Editing by Marla Dickerson)

U.S. House to vote on $25 billion postal infusion, mail-in ballot safeguards

By David Shepardson and David Morgan

WASHINGTON (Reuters) – U.S. House of Representatives Democrats unveiled on Wednesday legislation that would require same-day processing for mail-in ballots and give the cash-strapped Postal Service a $25 billion infusion while erasing changes pursued by the agency’s new leader, an ally of President Donald Trump.

The Democratic-led House is scheduled to vote on the legislation on Saturday, though there is little chance for passage in the Republican-led Senate. The bill would prevent the Postal Service from implementing policies to alter service levels that were in effect at the beginning of this year.

Democrats and other critics have accused the Republican president of trying to impair the Postal Service to suppress mail-in voting as he trails Democratic challenger Joe Biden in opinion polls ahead of the Nov. 3 election.

Under intense criticism, Postmaster General Louis DeJoy announced on Tuesday that he would put on hold until after the election cost-cutting moves at the Postal Service that Democratic lawmakers and state attorneys general argued could imperil mail-in voting. DeJoy said he suspended all “operational initiatives” through Election Day to “avoid even the appearance of any impact on election mail.”

DeJoy, who has been a major political donor to Trump, assumed the job in June.

The Postal Service long has faced financial woes with the rise of email and social media, losing $80 billion since 2007, including $2.2 billion in the three months ending June 30.

Democrats want DeJoy to explain how he will reverse the changes he has made, including whether he will order the return of sorting machines already removed.

Separately, Senator Chuck Schumer, the top Senate Democrat, asked the Postal Service Board of Governors to release all materials related to the selection of DeJoy and for “additional information” regarding the role of Trump and Treasury Secretary Mnuchin in the search and selection process.

The board in May said it reviewed records of more than 200 candidates before narrowing the list to more than 50. The board then interviewed more than a dozen candidates in first round interviews, and invited seven candidates for follow-up interviews.

Trump has repeatedly and without evidence claimed that mail balloting is vulnerable to fraud. Voting by mail is nothing new in the United States, and Trump himself plans to vote by mail in Florida this year.

White House Chief of Staff Mark Meadows said the White House was not involved in the Postal Service changes. The Treasury Department and the Postal Service did not immediately respond to requests for comment.

(Reporting by David Morgan, Susan Cornwell and David Shepardson; Editing by Will Dunham)

German prosecutor arrests head of Wirecard’s Dubai unit

BERLIN/MUNICH (Reuters) – German prosecutors said on Monday they had arrested the head of a Dubai-based subsidiary of Wirecard, widening the circle of suspects in a multi-billion-dollar fraud investigation into the collapse of the payments company.

The Munich prosecutor’s office said in a statement it had questioned the chief executive of Cardsystems Middle East FZ-LLC earlier in the day and arrested him on the basis of a warrant.

The executive had traveled from Dubai and turned himself in, prosecutors said, without naming him. Unless defendants are publicly known, their identity can be protected under German law to avoid prejudicing legal proceedings.

The arrest was made on suspicion of conspiracy to commit fraud, attempted fraud and aiding and abetting other crimes, prosecutors said. Prosecutors fear there was a risk that he would flee or tamper with evidence.

Wirecard filed for insolvency last month owing creditors almost $4 billion after disclosing a 1.9 billion euro ($2.1 billion) hole in its accounts that its auditor EY said was the result of a sophisticated global fraud.

Investigative journalists, researchers and speculators had long highlighted Wirecard’s reliance on an obscure trio of third-party acquiring partners – one of which was Cardsystems – to generate the bulk of its reported revenue and profit.

The latest arrest came after police and public prosecutors raided Wirecard’s headquarters in Munich and four properties in Germany and Austria last Wednesday as they widened their investigation.

Prosecutors are treating Wirecard’s Chief Financial Officer Alexander von Knoop and Chief Product Officer Susanne Steidl as suspects, in addition to former Chief Executive Markus Braun and chief operating officer Jan Marsalek.

Braun, who was arrested and released after posting 5 million euros bail, remains a suspect. Marsalek’s whereabouts are unknown and his lawyer is declining requests for comment.

(Reporting by Douglas Busvine and Joern Poltz; Editing by Arno Schuetze and Edward Taylor)

Special Report: ‘Scam PAC’ fundraisers reap millions in the name of ‘heart-tugging’ causes

By Jarrett Renshaw and Joseph Tanfani

Birmingham, Alabama (Reuters) – From unmarked strip-mall offices in small-town Alabama, the calls go out across the United States, meant to talk people into giving money for heart-tugging causes like helping breast cancer patients or the widows of fallen police officers.

Even as they charmed millions from credulous donors, a dozen former callers for two major fundraisers told Reuters that they knew their companies would be keeping the vast majority of it. And the groups they were raising money for weren’t charities at all, but political action committees, which normally are set up to gather funds for candidates or political causes.

“The motto was, ‘Leave your morals at the door,’” said Alexander Lefler, 21, who worked for nearly a year at a call center southeast of Birmingham, Alabama, describing what he saw as high-pressure and deceptive tactics. “We kind of all understood what we were doing was wrong, but I needed a place to live.”

The call centers in Alabama, along with others in Nevada, New Jersey, and Florida, raise money on behalf of “scam PACs,” slang among critics for political action committees that purport to support worthy causes but in reality hand over little of the money for political – or charitable – purposes. Instead, the bulk of the money is kept by fundraising firms or the people running the PACs.

Through interviews with the former callers and donors, reviews of call scripts and visits to three call centers in Alabama, Reuters has obtained rare access into the world of these for-profit fundraisers, a tiny but lucrative niche of the multi-billion-dollar U.S. telemarketing industry.

These so-called “scam PACs” and their fundraisers exploit the gray zone between U.S. election finance and state charity fundraising laws, regulators told Reuters. They often are set up as super PACs, groups which in recent years have been empowered by the courts to raise and spend money in unlimited amounts, with little regulation.

But “scam PACs” are not like other political action committees. Rather, they and their fundraisers present the PACs as charities, suggesting they support veterans, firefighters or victims of deadly diseases, for instance.

In fact, “scam PAC” operators and fundraisers are often old hands of the charity world, with a history of run-ins with regulators, state and federal records show. Some fundraisers work in both worlds, raising money for charities and PACs.

When organizations operate as political action committees, however, they are not subject to the laws governing charity fundraising, according to federal and state regulators and telemarketing industry officials. (See related story https://www.reuters.com/investigates/special-report/usa-fundraisers-scampacs on regulation of “scam PACs”)

In return for tax-exempt status, charities generally must register with states, disclose their key employees and account for how the money is spent – in some cases by providing audited financial statements.

Not so for “scam PACs.”

“It is a way for them to get around the charity laws – that’s exactly what they’re doing,” said Stuart Discount, chief executive of the Professional Association for Customer Engagement, a trade association for direct marketers.

“Scam PAC” telemarketers who use aggressive tactics in the charity realm also face less risk of scrutiny or sanction when they turn to PAC fundraising, regulators and former callers said. Callers told Reuters they easily made the switch, working in the same buildings, for the same bosses, using similar scripts.

Though “scam PACS” have no standard definition and can’t be definitively counted, a review of Federal Election Commission records suggests they account for a sliver of the some 6,800 PACs in the country. Even so, Reuters identified a loose network of fundraising companies and PACs that quickly grew into a money-making force, with some ranking near the top fundraisers in the period stretching from January 2017 through mid-2019.

Starting with a group of eight fundraising operations that earned at least a half-million dollars each during this period, Reuters traced interconnections among them and 31 PACs. Generally, those in the informal network portrayed themselves as charitable, gave little to the causes they promoted and relied principally on small donors. Most were super PACs, but several were traditional political action committees, which have contribution limits.

All told, the PACs took in $83.1 million during the 2 ½ year period examined by Reuters, about 82% of which went to the eight fundraising companies, according to the campaign disclosures required by the FEC.

The PACs examined for this article typically handed over less than 10% of their take – sometimes less than 1% – to candidates or causes, Reuters found. Aside from the lion’s share that went to for-profit fundraisers, many of the PAC operators took a slice for salaries and overhead.

Two of the fundraising companies identified by Reuters employed jail inmates and ex-cons as telemarketers, according to interviews in Alabama with several former employees, as well as court records.

Reuters interviewed a dozen donors to PACs in the informal network. All said they thought they were giving to a charity. Alex Angelides, a 31-year-old engineer from Arlington, Virginia, donated $600 to a super PAC called For a Better America, which spent 90% of its money on fundraising alone.

It’s infuriating,” said Angelides, who learned from Reuters that it was a PAC that got his money. “It would’ve been nice to know that my money was going to a PAC, not a charity, and that it wasn’t going to actually help police and firefighters directly.”

“There should be more transparency on this to protect consumers,” he said.

The committee’s treasurer, attorney Chris Marston, told Reuters the purpose of the PAC was to raise money “ in support of candidates who would help police and firefighters.”

“I’m sure the [call] scripts didn’t misrepresent anything,” Marston said. “I can’t speak to people’s understanding or what the scripts said.”

Few other top officers at these fundraising firms and PACS would speak to Reuters on the record. Those who responded denied their marketing was deceptive and defended their business model and compensation.

“I don’t think you understand how hard it is to fundraise,” said Forrest Sandusky Baker IV, a telemarketing professional. Baker said he founded Salt Lake City fundraising firm American Public Resource because he hoped to support worthy goals like helping veterans. The firm was paid nearly $3 million from 2017 through mid-2019 for its work raising money for PACS that spent anywhere from 0% to 7% on their promoted causes.

Baker said his employees never try to dupe donors and that he can’t control what his clients, the PACs, do with the money he raises.

“My job is to deliver a message, and try as best as I can to make sure I’m not working for a scumbag,” he said.

Richard Zeitlin, the biggest fundraiser in the loose network identified by Reuters, told a reporter in a brief interview that he had closed down all of his call centers, saying “I wanted a change in direction.” Asked about ex-employees’ claims of deception in his companies’ PAC fundraising practices, he declined to discuss specifics.

“How do I know you are telling the truth or the people who talked to you are telling the truth?” he said.

Last summer, after coming under fire from state and government regulators for alleged deception in fundraising for charities, he defended his reputation on a website called richardzeitlintruth.com.

While acknowledging that every industry has its “bad apples, he wrote: “To this day it strikes me as odd that an industry that has over the years hired hundreds of thousands of people (perhaps millions), many of whom had trouble holding down more traditional day jobs, would become such a punching bag for the government and the media.”

ANONYMOUS OFFICES, UNCLEAR OWNERSHIP

In a small Alabama town at the edge of the Talladega National Forest, next to a Chinese restaurant, stands a shop with mirrored windows and no signs.

The call center in Sylacauga, visited by Reuters last year, was operated by Las Vegas-based TPFE Inc, a firm controlled by Zeitlin. Like many such telemarketing centers tucked away in strip malls or office parks, it offered no clues to what went on inside.

Federal campaign records tell part of the story. In the 2 ½ year period examined by Reuters, records show, TPFE and three other Zeitlin firms earned more than $27.6 million for PAC fundraising.

For instance, the operation raised $16.8 million for PACs founded by Robert Piaro of Fredonia, Wisconsin, which purported to support police, veterans and people with breast cancer. About 82% of the money, $13.8 million, went to Zeitlin’s firms, while Piaro collected $190,613 in salary from the PACs, according to the records.

One Piaro committee, Americans for the Cure of Breast Cancer, garnered $1.6 million in donations through Zeitlin’s fundraising operations and made one charitable contribution, $10,000 to the Susan G. Komen Foundation – less than 1% of the total raised, campaign filings show.

JoAnn Coleman, 63, a construction engineer from Gaithersburg, Maryland, said she was particularly vulnerable to a pitch for the breast cancer PAC.

“I had breast cancer, so they knew how to get me,” she said. When she later realized it was a PAC telemarketer, she felt exploited. “What a racket, oh my God.”

Piaro declined to comment.

On his website, Zeitlin said his firms’ revenue – which he described as 80% to 90% of the proceeds – “may seem high” but actually is standard for the industry and is needed to offset high costs for technology and “intensive time-consuming labor.”

As a fundraiser for charities, Zeitlin ran into trouble with regulators.

In 2018, the Federal Trade Commission sued Zeitlin for allegedly deceptive practices in charity fundraising, but the case has been suspended because a grand jury was investigating, according to court documents. The FTC declined to comment.

Zeitlin told Reuters he was not the target of the grand jury investigation. He said only that it was based in Florida; Reuters could not determine the specific jurisdiction.

Neither Zeitlin nor his attorney would comment on the FTC lawsuit. Zeitlin, whose operations also have been examined by the Center for Public Integrity and other media outlets, said on his website that he’s “never been accused, indicted, tried or convicted of anything.”

Some political fundraising operations change locations frequently, operate under different names or dissolve and resurface under another name, making it difficult to trace their ownership, activities and connections to one another.

Reuters also could not ascertain the ownership of another large fundraising operation with a call center in Hoover, Alabama, some 45 miles from Zeitlin’s center in Sylacauga. Reporters visited the center last summer, though it has since closed.

Going by various names, the fundraising operation has worked for some of the same PACs as Zeitlin’s firms have and has employed some of the same people, according to internal PAC records, state corporate filings, employee interviews and deposition testimony in a civil case unrelated to this article. It also has roots in charity fundraising.

The fundraising operation used corporate names including Charity Promotions, from 2013 to 2016, and Charity Appeal, from 2016 to 2018, according to several ex-employee interviews and state filings. The fundraisers later went to work for PACs under the names Politicause and Pledge Assistance, both registered in Wyoming, which requires little disclosure from corporations.

Together Politicause and Pledge Assistance earned close to $20 million between January 2017 through mid-2019 raising money for PACS, campaign finance records show. Those two fundraising firms, whose ownership is not clear, dissolved – Pledge Assistance in July 2018 and Politicause in June 2019, according to Wyoming records.

Interviews and records indicate managers at both firms once worked at a Zeitlin company called Courtesy Call. None of the three managers Reuters was able to identify could be reached for comment.

At the time Reuters visited, the firm’s Hoover call center was jammed with desks and callers on headsets. The otherwise bland office was decorated with posters from the film “Glengarry Glen Ross,” a tale of ruthless telemarketer salesmen set in a real-estate boiler room. “Always Be Closing,” one poster read. “Coffee is for Closers Only,” read another.

LOOKING FOR ‘NATURALS’

In interviews, a dozen former employees of Politicause and Zeitlin’s TPFE described techniques they used to wrangle donations, leaving contributors with the impression they were giving to good causes.

“You are not lying, but you are being extremely misleading,” said Jason Jones, 24, a former employee at Politicause.

Training was minimal, pressure relentless and turnover high, the workers said. If new workers weren’t making sales, they were quickly fired. “It’s a sink or swim environment. They are looking for naturals,” said Jones, adding that good performers could take home $1,000 to $1,500 a week.

Former callers at both TPFE and Politicause said they were given scripts and FAQs that required them to mention that the groups were political action committees but were told by managers to glide past the disclosures about who was calling and how the money would be used.

“They said to pitch it like it was a charity but as quietly and quickly as you can, slip in that it was a PAC,” said Lefler, who worked at TPFE until March.

The callers said they’d already honed their charity pitches and so found it easy to repurpose them for the political committees, appealing to patriotism and what one called “pulling heartstrings.”

One FAQ, given to callers at Politicause and reviewed by Reuters, shaped the fundraising pitch for a super PAC called the American Coalition for Injured Veterans. It “is an organization who (sic) advocates for those who deserve it the most and are often left behind: American Veterans, especially who are homeless and disabled,” the FAQ read.

If the potential donors suspected they had given to the group before, the callers were instructed to say: “I have no way of knowing because we feel that donations are given from the heart, not the hand, so we keep all donation records confidential,” according to the FAQ.

The PAC, organized by Zachary Bass, spent 90% of its take on fundraising, campaign filings show. It spent $103,700 on behalf of House candidates – about 3% of the total, and it has contributed nothing directly to veterans groups.

Bass, who set up several other super PACs, declined to comment.

Across the industry, calls are computer-generated before being routed to telemarketers, something Politicause and TPFE employees said allowed their firms to maximize the number of calls – and to pester people repeatedly.

“They called 4 times in one day. We have told them many times to stop calling us,” one person contacted by Politicause complained to the FTC in April 2019, noting that the household was on a Do Not Call list.

Federal Do Not Call rules do not apply to political or nonprofit fundraising. Reuters obtained FTC complaint records, with names redacted, through a Freedom of Information Act request. The FTC’s response to complaints is not noted in the records.

Pitches at Politicause and TPFE were adapted to avoid allegations of fraud, former callers said, noting that the conversations were occasionally monitored by company compliance officers. At Politicause, for instance, some said they initially were told to say donations would be used to “help” buy new police and fire equipment. But because that suggested donors were contributing directly to purchasing new gear, the callers said they were told by managers to adjust their language.

“We could no longer say, ‘We are helping police officers get body armor,’ but we could say, ‘We are supporting efforts to get them body armor,’” said Jackie Armstrong, 32, a former Politicause employee.

When asked by potential donors how much of the money would go to the cause they were touting, telemarketers said they suggested it was the vast majority.

“‘We are proud to say it’s a 90-10 split,’” Jones recalled saying, leaving out that his company was getting the 90% share. “’We wish it was 100, but we have to keep the lights on.’”

The workers said Politicause managers eventually reined in that practice, requiring them to instead say that at least 10% went to the cause. Callers said they did so quickly and proudly, hoping people wouldn’t catch on.

At TPFE, callers said they told potential donors all proceeds went to “defraying the cost of the appeal [for funds] and to accomplish the mission,” said former employee Jake Adair, 28.

“Just enough to get them to stop asking,” he added.

FROM JAIL TO BOILER ROOM

James Dellinger, 34, said he and other callers got in the door with a remarkable qualification – they were in jail.

While in the Shelby County Jail on a felony charge of stealing a truck, Dellinger said he began working at a center in suburban Birmingham then known as Charity Promotions as part of his government-sponsored work release program. The company later was renamed Politicause.

These workers were a convenient labor pool – and skilled at getting people to open their wallets, former callers said.

“We were good at slick-talking these people,” said Dellinger, who court records show has been convicted of felonies including the truck theft and other burglary charges.

Some of the workers for TPFE also had felony convictions, according to several former callers and court records. The Sylacauga call center employed work release inmates, an arrangement that apparently ended before 2018, the former callers said.

“What is wrong with giving somebody a second chance?” Zeitlin responded when Reuters asked about his hiring practices.

Both Politicause and TPFE had procedures to keep workers with fraud convictions from handling credit card information, former callers said, although Politicause workers said the rules were sometimes relaxed for high performers.

Zeitlin did not respond to questions about this issue.

Drug abuse was a problem at both call centers, ex-employees said. They said it was not uncommon to find needles in the bathroom or a caller passed out at his desk.

Jessica Blanchard, 23, who worked at Politicause in 2018, said many callers either were addicts from halfway houses or jail inmates on work release.

Former Politicause employee Armstrong said he was fired in 2018, when the call center did charity fundraising, for having drugs at work. A week later, Armstrong said, he was rehired to help raise money for political action committees.

“It’s the only thing in life I’ve ever been (expletive) good at,” said Armstrong, who records show has theft and drug convictions. “Most of the guys that are real good are felons.”

(Jarrett Renshaw reported from Birmingham, Alabama, Joseph Tanfani from Washington; Editing by Julie Marquis)

U.S. Republican senators ask Treasury for suspicious activity reports on Hunter Biden

By Richard Cowan and Valerie Volcovici

WASHINGTON (Reuters) – The Republican chairmen of two U.S. Senate committees have asked the Treasury Department to provide any reports of money laundering or fraud related to former Vice President Joe Biden’s son’s business dealings with a Ukraine energy firm, according to a letter seen by Reuters on Friday.

The letter seeks “suspicious activity reports,” which are documents that financial institutions file with the Treasury Department’s Financial Crimes Enforcement Network whenever there is a suspected case of money laundering or fraud. It was unclear whether any such reports exist related to Hunter Biden, the former vice president’s son.

The request comes as Republicans seek to defend President Donald Trump against a Democrat-led impeachment probe into whether the president improperly pressured Ukraine to investigate the Bidens to improve his reelection chances.

Senate Finance Committee Chairman Chuck Grassley and Homeland Security and Governmental Affairs Committee Chairman Ron Johnson sent the request in a letter dated Nov. 15 to Treasury Department Director of Financial Crimes Enforcement Network Ken Blanco.

The chairmen said they want information by Dec. 5 related to Hunter Biden, who was on the board of directors of Burisma Holdings, which had been under investigation in Ukraine.

In their letter the senators noted Burisma was paying Hunter Biden as much as $50,000 a month and that their panels are investigating “potentially improper actions by the Obama administration with respect to Burisma Holdings and Ukraine.”

Grassley and Johnson, citing a story by a reporter with conservative ties, said Burisma’s consulting firm Blue Star Strategies used Biden’s board membership to gain access to Obama administration officials at the State Department.

The Bidens have denied any wrongdoing.

The elder Biden is a leading Democratic candidate for president in next year’s U.S. elections in which Trump is seeking a second four-year term.

Grassley and Johnson also said on Friday that they have asked the U.S. National Archives and Records Administration for records of 2016 White House meetings between Obama administration officials, Ukrainian government representatives and officials of the Democratic National Committee.

Trump and Republicans in Congress have been ramping up their rhetoric on the Bidens as the November 2020 U.S. elections near and as Democrats in the House of Representatives intensify their impeachment investigation of Trump.

Democrats are looking into whether Trump used the withholding of U.S. aid to Ukraine as leverage to press Kiev to launch investigations into the Bidens and allegations Ukraine meddled in the 2016 U.S. elections to hurt the Trump campaign. U.S. intelligence agencies have concluded it was Russia that tried to influence the 2016 election in favor of Trump.

On Thursday, Senate Judiciary Committee Chairman Lindsey Graham, an ally of Trump’s, wrote to Secretary of State Mike Pompeo requesting documents related to 2016 contacts between the Bidens, other Obama administration officials and former Ukrainian President Petro Poroshenko.

Trump has denied doing anything improper in Ukraine and has called the impeachment inquiry a witch hunt.

(Reporting by Valerie Volcovici and Richard Cowan; editing by Richard Valdmanis and Cynthia Osterman)

Special prosecutor to review actor Jussie Smollett’s case: judge

FILE PHOTO: Actor Jussie Smollett appears at a hearing for judge assignment with his attorney Tina Glandian (L), at the Leighton Criminal Court Building in Chicago, Illinois, U.S., March 14, 2019. E. Jason Wambsgans/Chicago Tribune/Pool via REUTERS/File Photo

By Brendan O’Brien

CHICAGO (Reuters) – A judge in Chicago on Friday named a special prosecutor to probe the case involving former “Empire” actor Jussie Smollett’s allegation that he was the victim of a racist attack, which authorities have ruled a hoax.

Cook County Judge Michael Toomin appointed former U.S. Attorney Dan Webb to investigate the case.

Smollett, who is black, gay and best known for his role on the Fox Television hip-hop drama “Empire,” told police on Jan. 29 that two masked men threw a noose around his neck and poured chemicals on him while yelling racist and homophobic slurs and expressing support for Republican U.S. President Donald Trump.

Toomin said Webb, who won a conviction of one of former President Ronald Reagan’s advisers for his role in the 1980s Iran-Contra scandal and now serves as co-executive chairman of one of Chicago’s largest law firms, was “guided by a strong moral compass and integrity.”

Former U.S. Attorney Dan Webb takes the oath of special prosecutor during a status hearing concerning actor Jussie Smollett at the Leighton Criminal Court building in Chicago, Illinois, U.S. August 23, 2019. Antonio Perez/Pool via REUTERS.

Former U.S. Attorney Dan Webb takes the oath of special prosecutor during a status hearing concerning actor Jussie Smollett at the Leighton Criminal Court building in Chicago, Illinois, U.S. August 23, 2019. Antonio Perez/Pool via REUTERS.

“We are honored to play a role in helping, as Judge Toomin said in a recent order, to restore the public’s confidence in the integrity of our criminal justice system,” Webb said in Cook County Circuit Court on Friday.

Webb said he intends to request a special grand jury to hear evidence on whether any people or offices previously handling the case had committed wrongdoing and whether there are further grounds to prosecute Smollett.

A month after Smollett made the allegation, Cook County State’s Attorney Kim Foxx charged him with filing a false police report and accused him of paying $3,500 to two men to stage the attack to generate public sympathy.

Smollett has denied staging the attack.

In March, to the shock and dismay of local politicians and police officials, Foxx’s office dropped the charges, saying an agreement by Smollett to forfeit his $10,000 bond was a just outcome.

Foxx recused herself from the case because of conversations she had about the incident with one of Smollett’s relatives.

Smollett was written out of the final two episodes of “Empire” this season after he was charged with staging the hate crime.

(Reporting by Brendan O’Brien in Chicago; Editing by Scott Malone and Paul Simao)

50,000 companies exposed to hacks of ‘business critical’ SAP systems: researchers

FILE PHOTO: People pose in front of a display showing the word 'cyber' in binary code, in this picture illustration taken in Zenica December 27, 2014. REUTERS/Dado Ruvic

By Jack Stubbs

LONDON (Reuters) – Up to 50,000 companies running SAP software are at greater risk of being hacked after security researchers found new ways to exploit vulnerabilities of systems that haven’t been properly protected and published the tools to do so online.

German software giant SAP said it issued guidance on how to correctly configure the security settings in 2009 and 2013. But data compiled by security firm Onapsis shows that 90 percent of affected SAP systems have not been properly protected.

“Basically, a company can be brought to a halt in a matter of seconds,” said Onapsis Chief Executive Mariano Nunez, whose company specializes in securing business applications such as those made by SAP and rival Oracle.

“With these exploits, a hacker could steal anything that sits on a company’s SAP systems and also modify any information there so he can perform financial fraud, withdraw money, or just plainly sabotage and disrupt the systems.”

SAP said: “SAP always strongly recommends to install security fixes as they are released.”

SAP software is used by more than 90 percent of the world’s top 2,000 companies to manage everything from employee payrolls to product distribution and industrial processes.

Security experts say attacks on those systems could be hugely damaging, both for the victim organizations and their wider supply chain. SAP customers collectively distribute 78 percent of the world’s food and 82 percent of global medical devices, the company says on its website.

Sogeti security consultant Mathieu Geli, one of the researchers who developed the exploits released online last month, said the issue concerned the way SAP applications to talk to one another inside a company.

If a company’s security settings are not configured correctly, he said, a hacker can trick an application into thinking they are another SAP product and gain full access without the need for any login credentials.

SAP said customer security was a priority and the vulnerabilities showed the need for clients to implement recommended fixes when they are released. “Security is a collaborative process, so our customers and partners need to safeguard their systems as well,” it said in a statement.

CRITICAL SYSTEMS

Researchers at Onapsis said on Thursday they were naming the exploits “10KBLAZE” because of the threat they posed to “business-critical applications” which, if hacked, could result in “material misstatements” in U.S. financial filings.

Nunez said he would share his company’s ability to detect the vulnerabilities with other security vendors to help secure all SAP users against possible future attacks. Full details here.

Sogeti’s Geli said he created the exploits to prove the danger of the vulnerabilities and released them online in order to help experts test the security of SAP systems.

He said there was a risk they could be used by malicious actors but not people without technical ability, and it was more important for companies to update their security settings.

“We are just pointing out something that is already fixed for SAP but clients maybe are a bit late on,” he said. “We are trying to push that and say: ‘Guys, this is critical, you need to fix it.'”

 

(Reporting by Jack Stubbs; editing by Georgina Prodhan)

Students tied to U.S. college admissions scandal could face expulsion

FILE PHOTO: A sign is pictured on the grounds of University of Southern California in Los Angeles, California, U.S., March 13, 2019. REUTERS/Mario Anzuoni

By Gabriella Borter

(Reuters) – The University of Southern California said it may expel students linked to the largest college-admissions cheating scandal in U.S. history after it completes a review of their records.

The school said on Monday night that it has already “placed holds on the accounts of students who may be associated with the alleged admissions scheme,” preventing them from registering for classes or acquiring transcripts.

“Following the review, we will take the proper action related to their status, up to revoking admission or expulsion,” the college said in a tweet on Monday night.

The move would affect the daughters of “Full House” actress Lori Loughlin and fashion designer Mossimo Giannulli. The parents were among 50 people charged last week with participation in what federal prosecutors called a $25 million bribery and fraud scam.

The mastermind of the scheme last week pleaded guilty to racketeering charges for bribing coaches, cheating on standardized tests and fabricating athletic profiles to help children of wealthy families gain admission to top universities including Yale, Stanford and Georgetown.

A spokesman for Georgetown on Tuesday said the school would not comment on disciplinary action against individual students linked to the scandal but added that it is “reviewing the details of the indictment, examining our records, and will be taking appropriate action.”

Yale, UCLA, and the University of Texas said last week that any students found to have misrepresented any part of their applications may have their admission rescinded. Stanford said it is “working to better understand the circumstances around” one of its students linked to the scheme.

Wake Forest’s president said in a statement last week, “We have no reason to believe the student was aware of the alleged financial transaction.”

Prosecutors said some students involved in the scandal were not aware that their parents had made the alleged arrangements, although in other cases they knowingly took part. None of the children were charged.

Several celebrities and corporate executives charged in the scandal have already felt career consequences.

The Hallmark cable channel last week cut ties with Loughlin for her alleged role in the fraud.

(Reporting by Gabriella Borter in New York; Editing by Jeffrey Benkoe and Steve Orlofsky)

Spurned students sue U.S. colleges in admissions scandal

By Jonathan Stempel

(Reuters) – The U.S. college admissions scandal that erupted this week has spawned lawsuits accusing rich, well-connected parents and prestigious schools of conspiring to admit those parents’ children at the expense of the less affluent.

Lawsuits began emerging on Wednesday, a day after federal prosecutors said a California company made about $25 million from parents seeking spots for their children in top schools including Georgetown University, Stanford University, the University of Southern California and Yale University.

Fifty people, including 33 parents, have been criminally charged in the nation’s largest known college admissions scandal. The accused mastermind, William Singer, pleaded guilty to racketeering charges.

In one civil lawsuit, Stanford students Erica Olsen and Kalea Woods said they were denied a fair opportunity to win admission to Yale and USC because of alleged racketeering, and said their degrees from Stanford will be devalued.

Singer and eight schools, including Stanford, were named as defendants in the lawsuit, which seeks unspecified damages.

Another lawsuit by Joshua Toy and his mother said he was denied college admission despite a 4.2 grade point average, and seeks $500 billion of damages from 45 defendants for defrauding and inflicting emotional distress on everyone whose “rights to a fair chance” to enter college was stolen.

The defendants, in that case, include Singer and accused parents, including actress Felicity Huffman, actress Lori Loughlin and her fashion designer husband Mossimo Giannulli, and TPG private equity partner William McGlashan Jr.

“These class-action cases are opportunistic creatures of lawyers trying to obtain a windfall,” Donald Heller, a lawyer for Singer, said in a phone interview.

Lawyers for the plaintiffs did not immediately respond to requests for comment.

Both lawsuits were filed in California. More lawsuits are likely.

Prosecutors said Singer used his Edge College & Career Network and an affiliated nonprofit to help prospective students cheat on college admission tests and bribe coaches to inflate their athletic credentials.

The Stanford case is notable because that school is among the country’s most prestigious and selective, admitting just 4.3 percent of its applicants last year.

But Olsen and Woods said their degrees are “now not worth as much” because prospective employers might question whether they were admitted on merit, or had parents whose bribes got them in.

A Stanford spokesman said the university is reviewing the lawsuit.

(Reporting by Jonathan Stempel in New York; Editing by Scott Malone and Susan Thomas)