Court Accepts DOJ's 'State Secrets' Claim to Protect Shadowy Neocons: A New Low

By Glenn Greenwald, The Intercept

27 March 15

truly stunning debasement of the U.S. justice system just occurred through the joint efforts of the Obama Justice Department and a meek and frightened Obama-appointed federal judge, Edgardo Ramos, all in order to protect an extremist neocon front group from scrutiny and accountability. The details are crucial for understanding the magnitude of the abuse here.

At the center of it is an anti-Iranian group calling itself “United Against Nuclear Iran” (UANI), which is very likely a front for some combination of the Israeli and U.S. intelligence services. When launched, NBC described its mission as waging “economic and psychological warfare” against Iran. The group was founded and is run and guided by a roster of U.S., Israeli and British neocon extremists such as Joe Lieberman, former Bush Homeland Security adviser (and current CNN “analyst”) Fran Townsend, former CIA Director James Woolsey, and former Mossad Director Meir Dagan. One of its key advisers is Olli Heinonen, who just co-authored a Washington Post Op-Ed with former Bush CIA/NSA Director Michael Hayden arguing that Washington is being too soft on Tehran.

Mission statement. (photo: The Intercept)

This group of neocon extremists was literally just immunized by a federal court from the rule of law. That was based on the claim — advocated by the Obama DOJ and accepted by Judge Ramos — that subjecting them to litigation for their actions would risk disclosure of vital “state secrets.” The court’s ruling was based on assertions made through completely secret proceedings between the court and the U.S. government, with everyone else — including the lawyers for the parties — kept in the dark.

In May 2013, UANI launched a “name and shame” campaign designed to publicly identify — and malign — any individuals or entities enabling trade with Iran. One of the accused was the shipping company of Greek billionaire Victor Restis, who vehemently denies the accusation. He hired an American law firm and sued UANI for defamation in a New York federal court, claiming the “name and shame” campaign destroyed his reputation.

Up until that point, there was nothing unusual about any of this: just a garden-variety defamation case brought in court by someone who claims that public statements made about him are damaging and false. That happens every day. But then something quite extraordinary happened: In September of last year, the U.S. government, which was not a party, formally intervened in the lawsuit, and demanded that the court refuse to hear Restis’s claims and instead dismiss the lawsuit against UANI before it could even start, on the ground that allowing the case to proceed would damage national security.

When the DOJ intervened in this case and asserted the “state secrets privilege,” it confounded almost everyone. The New York Times’s Matt Apuzzo noted at the time that “the group is not affiliated with the government, and lists no government contracts on its tax forms. The government has cited no precedent for using the so­-called state­ secrets privilege to quash a private lawsuit that does not focus on government activity.” He quoted the ACLU’s Ben Wizner as saying: “I have never seen anything like this.” Reuters’s Allison Frankel labeled the DOJ’s involvement a “mystery” and said “the government’s brief is maddeningly opaque about its interest in a private libel case.”

Usually, when the U.S. government asserts the “state secrets privilege,” it is because they are a party to the lawsuit, being sued for their own allegedly illegal acts (such as torture or warrantless surveillance), and they claim that national security would be harmed if they are forced to defend themselves. In rare cases, they do intervene and assert the privilege in lawsuits between private parties, but only where the subject of the litigation is a government program and one of the parties is a government contractor involved in that program — such as when torture victims sued a Boeing subsidiary, Jeppesen, for its role in providing airplanes for the rendition program and the Obama DOJ insisted (successfully) that the case not go forward, and the victim of U.S. torture was thus told that he could not even have a day in court.

But in this case, there is no apparent U.S. government conduct at issue in the lawsuit. At least based on what they claim about themselves, UANI is just “a not-for-profit, non-partisan, advocacy group” that seeks to “educate” the public about the dangers of Iran’s nuclear program. Why would such a group like this even possess “state secrets”? It would be illegal to give them such material. Or could it be that the CIA or some other U.S. government agency has created and controls the group, which would be a form of government-disseminated propaganda, which happens to be illegal?

What else could explain the basis for the U.S. government’s argument that allowing UANI to be sued would risk the disclosure of vital “state secrets” besides a desire to cover up something quite untoward if not illegal? What “state secrets” could possibly be disclosed by suing a nice, little “not-for-profit, non-partisan, advocacy group”?

We don’t know the answers to those questions, nor do the lawyers for the plaintiffs whose lawsuit the DOJ wants dismissed. That’s because, beyond the bizarre DOJ intervention itself, the extreme secrecy that shaped the judicial proceedings is hard to overstate. Usually, when the U.S. government asserts the “state secrets privilege,” at least some information is made public about what they are claiming: which official or department is invoking the privilege, the general nature of the secrets allegedly at risk, the reasons why allowing the claims to be adjudicated would risk disclosure, etc. Some redacted version of the affidavit from the government official making the secrecy claim is made part of the case.

Here, virtually everything has been hidden, even from the plaintiffs’ lawyers. Not only did the U.S. government provide no clue as to what the supposedly endangered “state secrets” are, but they concealed even the identity of the agency making the claim: was it the CIA, the Treasury Department, the State Department, some combination? Nothing is known about any of this, not even who is making the secrecy claim.

Instead, the DOJ’s arguments about why “secrecy” compels dismissal of the entire lawsuit were made in a brief that only Judge Ramos (and not even the parties) gets to read, but even more amazingly, were elaborated on in secret meetings by DOJ lawyers in the judge’s chambers with nobody else present. Were recordings or transcripts of these meetings made? Is there any record of what the U.S. government whispered in the ear of the judge to scare him into believing that National Security Would Be Harmed™ if he allowed the case to proceed? Nobody knows. The whole process is veiled in total secrecy, labeled a “judicial proceeding” but containing none of the transparency, safeguards or adversarial process that characterizes minimally fair courts.

This sham worked. This week, Judge Ramos issued his ruling dismissing the entire lawsuit (see below). As a result of the DOJ’s protection, UANI cannot be sued. Among other things, it means this group of neocon extremists now has a license to defame anyone they want. They can destroy your reputation with false accusations in a highly public campaign, and when you sue them for it, the DOJ will come in and whisper in the judge’s ear that national security will be damaged if — like everyone else in the world — UANI must answer in a court of law for their conduct. And subservient judicial officials like Judge Ramos will obey the U.S. government’s dictates and dismiss your lawsuit before it begins, without your having any idea why that even happened.

Worse, in his written ruling, the judge expressly acknowledges that dismissal of the entire lawsuit at the start on secrecy grounds is what he calls a “harsh sanction,” and also acknowledges that “it is particularly so in this case because Plaintiffs not only do not get their day in court, but cannot be told why” (emphasis added). But he does it anyway, in a perfunctory 18-page opinion that does little other than re-state some basic legal principles, and then just concludes that everything the government whispered in his ear should be accepted. Just read for yourself what Judge Ramos said in defending his dismissal to see how wildly disparate it is from everything we’re propagandized to believe about the U.S. justice system:

Statement. (photo: The Intercept)

What kind of “justice system” allows a neocon “advocacy” group to be immunized from the law, because the U.S. government waltzed into court, met privately with the judge, and whispered in secret that he had better dismiss all claims against that group lest he harm national security? To describe what happened here is to illustrate what a perverse travesty it is. Restis’s lawyer, Abbe Lowell, said in a statement this week:

We are disappointed that some secret relationship between UANI and the government allows UANI to hide from disclosing that association or to defend what has now been proven to be its false and defamatory allegations directed at Mr. Restis and his company. We are mystified that the U.S. government has such a stake in this case that it would take such extraordinary steps to prevent full disclosure of the secret interest it has with UANI or others. And, we are concerned that, in our court system, such a result could occur on the basis of sealed, one-sided filings and meetings in which we were not allowed to participate.

Even more critical is what this says about the Obama DOJ. One of the earliest and most intense grievances of civil libertarians during the Bush presidency was its radical abuse of the “state secrets privilege.” That doctrine began as a narrowly crafted evidentiary rule whereby parties to litigation would be barred from using specific documents that could reveal sensitive national security secrets. But it morphed into the legal equivalent of a nuclear bomb whereby the U.S. government could literally demand not that specific documents be excluded but that U.S. courts dismiss entire lawsuits before they began — even when those lawsuits alleged criminal behavior by top U.S. officials — on the ground that the subject matter of the lawsuit was too sensitive to be safely adjudicated.

The Bush Justice Department used this weapon to prevent its torture, detention, rendition and surveillance victims — even those everyone acknowledged were completely innocent — from having a day in court. They would simply say that the treatment of the plaintiffs was classified, and that disclosure would risk harm to national security, and subservient U.S. federal judges (an almost redundant term) would dutifully dismiss the lawsuits before they even began. It literally removed high U.S. government officials from the rule of law: if you commit crimes or brutally abuse people, you will be immunized from legal accountability if you did it in a classified setting.

When Obama was in the Senate and then running for President in 2007, he was highly critical of the Bush use of the “state secrets privilege” to get rid of troublesome lawsuits. His official campaign website cited Bush’s abuse of the privilege as a hallmark of excessive secrecy.

But like so many of his purported views, this concern about the use of the “state secrets privilege” was abandoned almost immediately upon his inauguration. His DOJ invoked the privilege to demand victims of Bush programs of torture, rendition, detention, and surveillance be denied any opportunity to be heard in court even when the U.S. government itself acknowledged they were innocent. Obama lawyers even invoked secrecy to argue that a lawsuit challenging the legality of their own targeted assassination program against a U.S. citizen could not be heard in court. As an early headline in the Obama-supporting TPM site recognized: “Expert Consensus: Obama Mimics Bush On State Secrets. And it worked in virtually every case.

Writing in 2009, Newsweek’s Michael Isikoff cited one of the earliest such cases and said it “is among the strongest examples yet of how Obama administration officials are adopting Bush-era secrecy positions in major national security cases.”

But in some important respects, this latest abuse is a step beyond that. It’s certainly true that legally immunizing brutal violations of human rights on secrecy grounds (as both the Bush and Obama DOJs have done) is worse than preventing a Greek billionaire from prosecuting a lawsuit. But to intervene in a private lawsuit in order to shield an extremist neocon group from the consequences of their actions — through secret meetings with the judge in which unaccountable “secrecy” assertions are made — is even more offensive to basic legal rights than what has preceded it.

Whatever else is true, it is certainly worth knowing why the Obama administration is so eager to protect this group. As Frankel wrote, the Obama DOJ’s “invocation of the state secrets privilege and motion to toss the case can be inferred as an endorsement of UANI’s campaign against Restis.” Why they are so eager to prevent discovery and investigation into this Iran-obsessed neocon group — who funds it, who controls it, what are its objectives? — should be of great interest to everyone.

It is worth noting in passing how often CNN’s “National Security Analyst” Fran Townsend is at the center of the most extreme neocon activism. She was one of those D.C. operatives taking cash from the anti-Iranian cult MEK at a time when the group was on the U.S. list of designated terror groups. And now here she is on the board of advisers of this group waging “warfare” against Iran. And then CNN trots her out regularly to offer “analysis” on national security matters — including on The Iran Threat — without any hint of her very vested activism in many of the issues which she’s “analyzing” for the “news network.”

Regulatory Capture, Captured on Video

By Matt Taibbi, Rolling Stone

27 March 15

SEC official slobbers over private equity titans, suggests his son might want a job in the field

his is courtesy of Yves Smith over at Naked Capitalism, who's been following the strange story of SEC Examination chief Andrew Bowden's evolving position on financial corruption for a while.

That story blew up recently in a remarkable public appearance by Bowden, in which the would-be enforcement official cravenly compliments the industry he supposedly polices and then — get this — jokingly puts forward his own son as a candidate for a job in private equity. On video. You won't see a more brazen example of regulatory capture anywhere.

Some brief backstory. Just a little under a year ago, Bowden, the SEC's Director of Compliance Inspections and Examinations, gave a speech that was remarkably, unusually critical of the Private Equity field. Bowden had conducted a study of the Private Equity business and found that over half of the companies they looked at were guilty of ripping off their clients:

By far, the most common observation our examiners have made when examining private equity firms has to do with the adviser's collection of fees and allocation of expenses. When we have examined how fees and expenses are handled by advisers to private equity funds, we have identified what we believe are violations of law or material weaknesses in controls over 50 percent of the time.

To fully explain what Bowden is talking about here would require a much longer article, but the basics go something like this.

Private Equity reptiles like Mitt Romney make their living borrowing huge sums of money, millions and billions, from investors called "limited partners." They then take that borrowed money and acquire companies with that cash, sometimes with the company's consent, sometimes without it.

The ostensible object of the exercise (at least, this is the way folks in the Private Equity business would describe it) is to make money for the limited partners by acquiring flawed firms, turning them around, and channeling the profits from the reborn target firm back to the investors. 

However, from another point of view, the more immediate object of the exercise is to make money for the Private Equity firm. This can be achieved in virtually countless ways once these takeover parasite-pirates have latched on to their target. But the most reliable way of making cash is to soak the acquired company for huge masses of fees, both legit and not.

The always-excellent Gretchen Morgensen brought up a great example last year, in a piece about a company called Biomet that had been taken over by a consortium of PE partnerships. She wrote that Biomet will be forced to keep paying about $30 million in "monitoring fees" through 2017, which as Morgensen notes is two years after the deal closes.

In other words, she wrote, "Blackstone, Goldman Sachs, K.K.R. and TPG will be paid for two years of services that Biomet isn't receiving."

Anyway, last year, Andrew Bowden at the SEC found that over half of the PE/LBO firms he looked at were doing something wrong with fees.

One of the most common scams involves the use of something called "Operating Partners." In essence, the PE firm forces the target company to hire their people as independent contracting consultants.

As Bowden put it, these "Operating Partners" are typically Wall Street hotshots whose services "the portfolio companies could not independently afford."

The scam here, as Yves Smith points out, is that the investors think that the Private Equity firm is paying for these managers, while in fact they're being paid for by the acquired company. As Smith says, this scheme essentially robs the investors:

From an economic perspective, every dollar that comes out of a portfolio company this way is effectively stolen from the limited partner investors, since they would otherwise have the first claim on the portfolio companies' cash flows.

All of which is a complicated way of saying the following: Takeover Artist Jerks use hidden fees to rip investors off.

Last May, Bowden, a senior SEC official, described this problem as almost epidemic. The SEC looked at 150 companies and over half were guilty of something.

A year later? They're not so worried.

It raised some eyebrows over the course of last summer and fall when the SEC did not follow up on Bowden's remarks.

Even some Private Equity trade publications began to wonder aloud where the beef was, noting that "there hasn't been much additional commentary" from the SEC since Bowden's aggressive speech last May.

Bowden himself seemed to walk back some of his comments in an interview last September. "Anecdotally," he said, "I would say there have been some changes in the behavior on the part of funds and investors and that's all for the good."

Anecdotally? It is a very odd thing to hear a regulator in the middle of a granular, industry-wide examination say that he's heard that things are getting better. Regulation by rumor is not your typical enforcement MO.

By this month, Bowden had achieved a complete 180, telling a conference of PE professionals that their business was just "the greatest."

This is Bowden on March 5th, on a panel for PE and Venture Capital issues at Stanford. Check out how he pooh-poohs the fact that his SEC has seen "some misconduct," before he goes on to grovel before his audience:

Like what, who else out there is in a business that's that good? And I reckon, it's sort of interesting for me for private equity in terms of all we've seen, and what we have seen, where we have seen some misconduct and things like that, 'cause I always think like, to my simple mind, that the people in private equity, they're the greatest, they're actually adding value to their clients, they're getting paid really really well, you know...

Not the usual posture you'd expect from an enforcement official. He likes the Private Equity business! They make a lot of money! They help people! And that thing about half of those businesses committing fee abuses, that's just "some misconduct" we found last year. No big deal!

It got worse, though:

Bowden: And so my view on the small ones is, I still think this is one of…I tell my son, I have a teenaged son, I tell him, “Cole, you want to be in private equity. That's where to go, that's a great business, that's a really good business. That'll be good for you.”

So for me personally, as we share our opinions…

Questioner [interrupting] I'd love to hire your son, by the way. That's a deal.

Bowden's comments certainly raised a few eyebrows. The LA Times wrote quite critically about them, as did a few other outlets.

There are some people who will say it's easy to overreact to something like this. If you listen to the tape, Bowden makes his comments in a joking manner, and everyone laughs. It's not like he brought his son onstage and had him hand out resumes after the speech.

But no government regulator with his or her head screwed on correctly would ever go near a joke like that in public. Even if it's not what it very much appears to be, it sounds incredibly bad.

And, worse, it reveals an attitude that's absolutely poisonous among regulators, this fawning worship of people on Wall Street who maybe break a few rules, but that's okay, because they make tons of money! Can you imagine Elliott Ness giving a speech gushing over what nice cars Al Capone drives? It's revolting.

It's not necessary for regulators to hate the greedy bottom-liners who go around toying with peoples' jobs and livelihoods using borrowed money.

It's not even necessary for regulators to hate those same rich takeover artists for paying half the taxes of most ordinary people, because our bought-off government refuses to close the loophole that allows Mitt Romney to call the money he makes "carried interest" instead of income.

We don't need regulators to be out to get anyone. But is a healthy indifference too much to ask? Do we really need for even the regulators to slobber over these people?