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The department has been sharply criticized in the past for what some allege is a problematic partnership with debt collection agencies.
Andrew Burton / Reuters
The Department of Education announced late Friday that it had cut ties with five debt collection agencies that it says have been providing inaccurate information to student borrowers. One of those agencies is Pioneer Credit Recovery, a massive subsidiary of the publicly traded Navient Corporation, which is among the department's largest debt collectors.
The department has been sharply criticized in the past for what some allege is a problematic partnership with debt collection agencies, who the government pays $1 billion each year to chase after student borrowers who are delayed on their loans.
A report by the National Consumer Law Center found that Navient's Pioneer Credit Recovery had among the highest levels of complaints from borrowers, but had received a performance bonus of more than $2.5 million from the government. Navient split from the student loan giant Sallie Mae last year. A 2012 Bloomberg article found that Pioneer Credit had used ruthless tactics to extract payments from borrowers, even those who were eligible for relief.
A review of debt collections agencies, the Department of Education said, found that Pioneer Credit and four others had given borrowers inaccurate information about the department's loan forgiveness program at "unacceptably high rates." Because of incentive-pay structures, debt collectors made less money for students who entered loan forgiveness programs than for those who made payments, according to the National Consumer Law Center Report.
The company’s new CEO, Paula Schneider, recently responded to a series of mass emails sent to employees by an anonymous insider. The emails were critical of American Apparel’s new management and the hedge fund backing the company.
American Apparel
American Apparel may have fired its founder Dov Charney last year, but new management is learning that he's far from gone.
A group of Charney supporters within the company, who operate behind the name and hashtag #TeamDov, have been rallying support for the founder and slamming American Apparel's new executives and investors through a digital campaign that management is struggling to quell. One employee has been sending pro-Charney mass emails to American Apparel employees through a variety of anonymous addresses during the past two months, causing enough ruckus that CEO Paula Schneider was forced to address the messages in a staff-wide memo on Feb. 19, BuzzFeed News has learned.
Obtained by BuzzFeed News / Via Source
"Over the last couple of months, we all have received 'blast' emails from an anonymous outsider criticizing American Apparel, its management and its policies," Schneider, who started as CEO last month, wrote in a message obtained by BuzzFeed News. "Some of the emails have even been designed to appear like they are being sent from inside the company. I have refrained from responding to these emails because I feel they do not deserve our collective attention."
She continued: "That said, I cannot let today's email — which stooped to personally attacking hard-working members of the American Apparel team — go without a response. As a company, we embrace free speech and social commentary by our employees. That is a valued part of our culture. But today's email provides an opportunity for me to reach out to all of you. I encourage you not to be influenced by unfounded personal attacks or baseless threats about job security sent by outsiders who do not have the company's best interests at heart."
The specific email Schneider is referring to accused Standard General, the hedge fund with the most financial control of the company, of "draining" American Apparel and forcing cutbacks at the retailer. The email included a link to a New York Post story about a lawsuit against Standard General, in which unsecured creditors of RadioShack are accusing the hedge fund of timing its investment in RadioShack to maximize a payout from the company's recent bankruptcy, raising concern that American Apparel could suffer the same fate. The email noted that Colleen Brown, American Apparel's newly-appointed chairperson, was brought onto the board last year by Standard General (though it incorrectly identified her as CFO) and that new General Counsel Chelsea Grayson was Brown's pick.
"We need Standard General OUT," the employee wrote in the Feb. 19 email. "We have a bunch of consultants draining our company sitting in a room all day making 6 figures a month. THAT IS NOT AMERICAN APPAREL."
While Schneider wrote that the emails came from an outsider, BuzzFeed News confirmed they originated from a current employee, who requested anonymity citing fear of retribution. The employee said they have roughly 5,000 americanapparel.net addresses and sent the messages in batches of 500; multiple employees have told the anonymous emailer that the messages have been deleted from their inboxes as American Apparel's management works to stem the tide.
A spokesperson for American Apparel, declined to comment.
The pro-Charney insurgency shows how tightly a founder's personality can become entwined with a company. Emails prior to the Feb. 19 message centered around gaining signatures and statements for the TeamDov website, which says it's "a statement of support for Dov Charney and his business vision at American Apparel from workers and executives at all levels of the company and around the world." Hundreds have since signed the petition.
One of the anonymous emails described the campaign as being about more than just Charney, saying it is also a response to American Apparel "being taken over by corporate Wall Street guys who don't care about the company or the brand or the image or its employees."
Charney, who founded American Apparel in 1998, was served with a termination letter in June for a long list of reasons including: breaching his fiduciary duty, violating company policy, sexual harassment, and misusing corporate assets, accusations that Charney has called "baseless." Charney was working as a paid consultant for American Apparel during an internal investigation that began in July, but was fired in December; the #TeamDov website was born almost immediately after.
Charney pledged 43% of his stake in the company to Standard General this summer, in a deal that apparently soured. He told Bloomberg News in late December that the hedge fund conspired with a board member to oust him after agreeing to reinstate him.
He told the news outlet: "I gave them my entire life's work and they agreed to put me back in, but instead they used this investigation to fire me. They betrayed me." Charney has not commented on the current round of anonymous emails and the response by management.
Standard General, for its part, said last December it "supported the independent, third-party and very thorough investigation into the allegations against Mr. Charney, and respect the board of director's decision to terminate him based on the results of that investigation."
In the years following the recession, hedge funds and private equity firms snapped up cheap residential real estate across the country. Here’s where to move if you want to send Wall Street a rent check.
AP Photo/Julie Jacobson
In the years since the recession, Wall Street has capitalized on the housing crisis it helped create, snapping up properties in stalled or distressed residential developments across the country and renting them out for a profit.
Most recently, New York-based private equity firm Cerberus Capital joined the Wall Street landlord trend, purchasing more than 1,500 houses in Florida, Illinois, and Texas.
Since 2012, private equity firms, hedge funds, and real estate investment trusts or their affiliated business have bought north of 150,000 houses and spent more than $25 billion to do so, according to investment bank Keefe, Bruyette & Woods. And the online real estate database RealtyTrac has a tracker by county that shows where the largest institutional investors own the most rental properties.
*Real Estate Investment Trust, a tax-friendly way to create a publicly traded company that owns real estate.
Collaboration with Marty Easter and Michael Parente.
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Conservative opposition likely derailed the education bill.
Mandel Ngan / Getty Images
A Republican-led effort to repair No Child Left Behind collapsed unexpectedly Friday after House Republicans could not generate enough support from their own party.
The House was expected to vote today on the Student Success Act, a Republican bill that would replace George W. Bush's long-expired No Child Left Behind law. But conservative opposition to the bill derailed the vote, which was eventually cancelled.
The Student Success Act dramatically would dismantle several key provisions of Bush's trademark education law, ending some federal programs, and returning significant oversight to state and local governments. But the conservative Heritage Foundation and Club for Growth had rallied ultra-conservative members to vote "no" on the bill, saying it did not go far enough in reducing the federal government's control of education.
The Student Success Act would keep an unpopular federal mandate that students be tested every year in third through eighth grade. It would also not permit states to opt out of the program. The Club for Growth criticized the bill for showing "no meaningful reduction in overall spending;" the Success Act calls for locking in education funding at 2012-2013 levels.
The Obama administration waged its own battle to derail the House's bill earlier this week, when it released numbers claiming that funding provisions would mean drastic cuts for school districts with many poor and minority students. Many took issue with the administration's analysis, saying they presented an unlikely worst-case scenario.
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For the first time ever in the U.S. and the U.K., new albums will soon be released on Friday.
Creatas Images / Getty Images
The idea of a global release date has been a dream in some corners of the music industry for years. As of now, many countries have their own release dates — in the U.S. it's Tuesday, in the UK it's Monday, and in Australia and Germany it's Friday — which wasn't much of a problem before most people started buying and listening to music online. Now, in the age of the internet, social media, and streaming, once an album is available anywhere in the world, people want it everywhere. Releasing music on the same day around the world, the argument goes, will deter eager consumers who won't wait until an album is released in their country from downloading it illegally.
In a statement, IFPI CEO Frances Moore said a majority of respondents to polls in major international markets indicated they would prefer music to be released on a Friday or Saturday, days when they have more free time to shop. In a subsequent interview with Billboard , she said IFPI's research indicates that there's a 3% surge in retail foot traffic for music over the weekend.
The payments service, soon to be spun off from eBay along with its parent company PayPal, has taken a distinctly ¯\_(ツ)_/¯ approach to a damning story about its security flaws.
Matthew Zeitlin / Via Venmo
The trendy payment app Venmo is facing perhaps the worst public relations crisis in its short history: a damning Slate article detailing Venmo's lack of basic security and notification features, which leaves its users highly vulnerable to hackers.
And its response to the crisis, at least so far, suggests the company doesn't care to discuss how it plans to fix the app's serious problems. Venmo provided no comment for the Slate story, despite reporter Alison Griswold showing up at the company's New York offices (Slate and Venmo share a building).
The story lead to a torrent of social media lamentation, with users promising to delete Venmo or at least delink their bank accounts from the app. And even this afternoon, responding to inquiry from BuzzFeed News, Venmo showed little interest in addressing the story.
The telecommunications giant is not happy about today’s FCC vote approving strict new regulations on internet providers. But the result is a couple of amusing press releases.
Paul J. Richards / Getty Images
In response, Verizon argued that the rules being applied were outdated relics from a previous communications era and would regulate the internet like the early telephone networks of the 1930s.
Verizon / Via publicpolicy.verizon.com
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The owner told employees in a memo.
I want to share with you a new development regarding the company.
A few weeks ago, we were approached about our potential interest in
selling the Daily News. Although there were no immediate plans to
consider a sale, we thought it would be prudent to explore the
possibility and talk to potential buyers and/or investors. To help us
with the process, I have retained Lazard, a leading financial advisory
firm.
I have not come to this decision easily. But I believe the immense
hard work in turning the business around in an extremely challenging
period for the industry, has put the Daily News in as strong a
position than it has ever been, particularly online.
I appreciate that this news is difficult for you to digest. But I want
to reassure you that my aim throughout this process will be to do the
right thing for the business to ensure the Daily News and its
brilliant staff have the best opportunity to achieve all our future
ambitions.
Mort
California Virtual Academies, a chain of 11 online charter schools with 14,000 students, is the subject of a critical new report from In The Public Interest, an advocacy group.
Don Douglas
One of country's largest chains of for-profit online charter schools has seen almost a decade of declining academic results, mounting structural problems, and potential self-dealing by its operator, according to a report released today by In The Public Interest. California Virtual Academies, which has 14,000 students at 11 schools strung out across the state, is run by the giant K12 Inc., a publicly traded company that has attracted strong criticism in the past for its management of virtual charters.
Even in the face of controversy, K12 has been in the business of rapidly expanding virtual education across the country; in the past month alone, it won drawn-out legal battles to open new online schools in Maine and North Carolina, and it now enrolls 123,000 students nationwide. But In the Public Interest's report could deal a blow to that growth.
Virtual charter schools like California Virtual Academies, or CAVA, are public schools that exist entirely online: taxpayer dollars pay for students students in kindergarten through twelfth grade take classes from home, communicating with their teachers via computer.
CAVA, the report says, has been plagued by years of slumping academic results: its graduation rate over the past four years has been 36%, meaning it had more dropouts than graduates, and its academic performance has declined steadily since 2005. Though K12 Inc. has consistently blamed poor academic results at virtual schools on the student population it serves, the report shows that even compared to demographically similar schools, CAVA falls short.
K12 Inc. did not immediately respond to requests for comment.
Though the schools themselves must technically be nonprofits, K12 and the company's main competitor, Pearson's Connections Academy, have transformed them into a booming business by taking over virtual schools' management, administration, curriculum, and even budget. K12, which is publicly traded, takes in just under half of the tens of millions in taxpayer money that flows into CAVA's 14 schools, according to the report; the rest goes to teacher and staff salaries.
The report takes aim at the "troublesome" relationship between K12, its school boards, and the districts that approve the schools. Control schools is effectively ceded fully to K12 Inc., the report found: the nonprofit boards that technically oversee K12's schools are made up of just two to four people and meet infrequently, with one spending an hour and 37 minutes a year to oversee a school of 3,000 students in Los Angeles.
Financial structures at CAVA open the door to self-dealing, the report said. K12 pays itself out of bank accounts that it manages, the report says, and prohibits schools from seeking out other vendors — unless K12 itself signs off on the deal. And CAVA is perpetually in debt to K12: in 2013, it owed the company $23 million, on top of the $47 million that it paid out.
In most states, K12 operates a single, massive school that draws students from all corners of the state. But to comply with California law, K12 instead operates out of a dozen different districts, an arrangement that the report finds problematic: the school districts that K12 chooses to oversee its schools are often tiny, with vastly limited resources. A district of 30 students — a single, quaint country schoolhouse with six teachers and a principal that also serves as the district's superintendent — authorizes CAVA's 3,000-student San Diego school. In the New Jerusalem school district, there are 29 non-charter students to CAVA's 1600.
In the Public Interest's report comes as CAVA's fight to form a union, claiming that teachers are paid unfairly and forced to work with inadequate resources and understaffing. That effort has faced heavy opposition from K12 Inc., according to union leaders.
Cara Bryant, a 9-year CAVA teaching veteran who has been part of the unionization efforts, said that she has seen conditions at the virtual schools decline under K12's leadership. "Class sizes have gone up, teachers have been saddled with more and more clerical duties, and our resources are increasingly not being used on students," Bryant told BuzzFeed News. "Teachers are not getting the resources to do their jobs."
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Under former CEO Mike Jeffries, Abercrombie & Fitch developed a hyper-specific look for its customers and its employees. That look has now stumbled its way into the Supreme Court.
Samantha Elauf ©, her mother Majda Elauf (L), and Equal Employment Opportunity Commission General Counsel David Lopes leave Supreme Court Wednesday.
Chip Somodevilla / Getty Images
Abercrombie's famously stringent "Look Policy" for sales associates—which specified everything from the maximum acceptable number of earrings (2) to the maximum length of fingernails (1/4 inch)—was discussed by the nation's highest court today.
This, of course, has a significance all of its own: It means Abercrombie's hyper-specific, borderline absurd dress code, enforced by former CEO Mike Jeffries, has been cemented in U.S. legal history for as long as this nation stands.
It also contributed to a more narrow debate in the Supreme Court, related to the company's decision not to hire a 17-year-old Muslim woman in 2008, after determining her headscarf failed to comply with its look policy. Samantha Elauf, who scored well enough otherwise to be hired as a "model" at an Abercrombie kids store in Tulsa, Oklahoma, was told her hijab precluded her from getting the job, as it was against policy for models to don headwear.
A snapshot from Abercrombie's 2013 "Hairstyle Sketchbook"
Obtained by BuzzFeed / Via buzzfeed.com
The Equal Employment Opportunity Commission won an initial religious discrimination suit against Abercrombie that was filed on Elauf's behalf, but another court reversed the ruling in 2012, saying a job applicant "must present the employer with explicit details sufficient to give it 'particularized, actual knowledge' before an employer need consider accommodating the applicant's religious practices.'
That court said it doesn't matter if a company has more knowledge than an applicant about how its rules might conflict with their religious practices. In other words, they said Abercrombie can't be held liable for failing to accommodate Elauf's headscarf, as it wasn't the retailer's responsibility to ask about it and her ability to comply with the look policy. Instead, the court said, it was Elauf's fault for never informing Abercrombie that she wore her hijab for religious reasons and thus needed an accommodation. The Supreme Court listened to arguments today about whether the burden of asking for such a religious exemption falls on an employee or the employer.
Abercrombie argued that employers should not be forced to stereotype applicants as requiring religious exemptions and that Elauf should have figured out her hijab might violate the Look Policy and brought it up prior to the hiring decision. The EEOC contended that applicants are at a big informational disadvantage regarding a potential employer's policies and that if a problem is sensed, it's a company's responsibility to start a dialogue.
"If she had told him, this is for religious belief and I need an accommodation from the Look Policy, at that point, under the statute, there would be a duty to accommodate," Shay Dvoretzky, the lawyer arguing on behalf of Abercrombie, said today. "What we want to avoid is a rule that leads employers, in order to avoid liability, to start stereotyping about whether they think, guess or suspect."
"The point is to initiate the dialogue," Deputy U.S. Solicitor General Ian Gershengorn said, arguing on behalf of the EEOC. "Had that happened here, then we would be talking about a different point in the process about whether there was a reasonable accommodation that could be done and whether it could be done without undue hardship. But that dialogue never happened here, and that is the problem with the case as we see it."
"This is what makes this a very important case...unlike employees, who are in a position to go back and forth with their employer and understand the work rules, applicants are at a serious informational disadvantage," Gershengorn said. "They don't know the work rules. And in this case, it is undisputed that (Elauf) did not."
The justices exhibited their knowledge of 2008-era Abercrombie and its preppy fashions and ban on the color black while asking about the circumstances under which an employer can reasonably consider the possibility of a religious exemption.
Justice Alito outlined a situation in which four people show up for a job interview at Abercrombie — a Sikh man in a turban, a Hasidic man in a hat, a Muslim woman in a hijab and a Catholic nun in a habit. (He noted that he realized this would sound like the start of a joke, to laughter in the courtroom.)
"Do...those people have to say, 'We just want to tell you, we're dressed this way for a religious reason, we're not just trying to make a fashion statement'?" Alito asked.
"One can certainly imagine cases in which it is more obvious than others that a particular garb is likely worn for religious purposes," Dvoretzky responded. "There are some circumstances in which it is certainly more likely than others, but the question before the Court is to devise a rule that's going to apply across the board.."
Abercrombie argued that it would treat any applicant with a head covering similarly, whether it was a hijab, a baseball cap or a yarmulke, and that the company is entitled to make style judgments in job interviews that result in hiring decisions. That argument didn't fly over so well, however.
"If I walked into an Abercrombie interview wearing a suit, presumably Abercrombie could tell me, 'When you come to work, please don't wear the suit, please wear our clothes,'" Dvoretzky said "But it would also be equally rational for Abercrombie to say, you know, if this person is coming in wearing a suit, that's not compatible with our style. And likewise for the headscarf.. (The district manager's) testimony...is that he would have taken the same action for somebody who came into an interview wearing a headscarf, a baseball cap, a helmet or another religious symbol."
Chief Justice Roberts shot back: "That doesn't work in a case like this. It's not a question, are you treating everybody the same. You have an obligation to accommodate people with particular religious practice or beliefs, so to keep constantly saying, 'Oh, we would have treated somebody with a baseball cap the same way,' doesn't seem to me is very responsive."
Justice Kagan noted that stereotyping in order to ask a job applicant about religious accommodation, based on a hijab or other indicator, is better than cutting them out altogether.
"You're essentially saying that the problem with the rule is that it requires Abercrombie to engage in what might be thought of as an awkward conversation, to ask some questions," Justice Kagan said. "But the alternative to that rule is a rule where Abercrombie just gets to say, 'We're going to stereotype people and prevent them from getting jobs. We'll never have the awkward conversation because we're just going to cut these people out and make sure that they never become Abercrombie employees.'"
The court is expected to make its final decision in May.
An Abercrombie spokesperson emphasized in an e-mailed statement today that the company "consistent with the law, has granted numerous religious accommodations when requested, including hijabs." A more recent copy of the company's look policy, obtained by BuzzFeed News and included below, supports that.
"The narrow issue before the Supreme Court is whether an employee who wants a religious accommodation must ask for one, or whether employers are obligated to guess and speculate about an employee's religion to ascertain the need for religious accommodation," the spokesperson said.
Abercrombie, the hottest teen retailer in the late 90s and early 2000s, has been struggling in recent years, losing sales and shuttering stores. Jeffries, the company's modern-day founder who ran the company since 1992, was ousted in December. The executive was famously specific about dress codes in Abercrombie stores, and even had a 40-plus page manual specifying the appropriate behavior for staff on the company's corporate jet.
The company says its stores now have more than 50% non-white staff today, up from less than 10% in 2004.
The bank said it had reached a preliminary agreement with the Justice Department today.
Morgan Stanley, one of two remaining large independent investment banks, said today that it had reached a preliminary $2.6 billion settlement with the Justice Department over its dealings with mortgage-backed securities before the financial crisis.
The company said in a filing today that the civil division of the Justice Department and the U.S. Attorney for the Northern District of California had intended to bring civil charges against the bank, and it has increased its reserves for legal losses by $2.8 billion. The bank said that while an agreement had been reached, "there can be no assurance that the Company and the Civil Division will agree on the final documentation of the settlement."
Morgan Stanley is the latest bank to shell out for a large settlement to resolve a Justice Department civil investigation of its pre-financial crisis creation and marketing of mortgage-backed securities. The bundles of home loans packaged into bonds and sold to investors were central to the financial meltdown and recession that followed. Bank of America paid $16.65 billion to settle with the Justice Department and other regulators, JPMorgan Chase paid $13 billion, and Citigroup paid $7 billion.
The Wall Street Journal reported earlier this week that Goldman Sachs was "inching closer to resolving U.S. claims" that it had "misled investors in mortgage bonds that plummeted in value during the financial crisis."
Goldman said in a regulatory filing that it had raised its estimate for legal losses from $2.5 billion to $3 billion. Goldman said in the filing that the U.S. Attorney for the Eastern District of California had sent the bank a letter "stating in connection with potentially bringing a civil action that it had preliminarily concluded that the firm had violated federal law in connection with its underwriting, securitization and sale of residential mortgage-backed securities."
Ben Lawsky said today that banks and the financial industry still hasn’t caught up to the threat posed by increasingly sophisticated teams of hackers.
Maxkabakov / Getty Images
New York's superintendant of financial services wants financial institutions to stop depending on their passwords, boost their cyber defenses and require more of their security providers. In a wide-ranging speech at Columbia University, Ben Lawsky also said banks aren't doing enough to monitor suspicious transactions, and defended his own aggressive role in going after wrongdoing at the banks he regulates.
He said state regulators "should not be afraid to speak up and act if we spot new risks emerging in the market" and should be willing to sometimes go further than federal regulators "if we think that current approaches to enforcement and prosecution are not effectively deterring wrongdoing on Wall Street."
Lawsky, a former federal prosecutor who has led New York's Department of Financial Services since it was created by governor Andrew Cuomo in 2011, has flung his regulatory muscle across the financial world. The DFS has extracted large settlements and fines from the international banks whose New York-chartered operations it oversees, like Standard Chartered and Credit Suisse, and insisted that the chief operating officer of France's BNP Paribas and the chairman of the large, Atlanta-based mortgage servicer Ocwen leave as part of regulatory settlements.
"Corporations are made up of people. If there is wrongdoing at a corporation, that wrongdoing was committed by people," Lawsky said. "But more and more often it feels like we are discussing a corporation's wrongdoing without detailing who exactly did what wrong."
The large settlements the Justice Department and regulators have reached with banks over their marketing and sales of mortgage backed securities have had eye-catching numbers attached to them — $16.65 billion for Bank of America, $13 billion for JPMorgan — but have not included charges against specific bank executives.
"In my opinion, if in any particular instance we cannot find someone, some person, to hold accountable, that just means we have stopped looking," Lawksy said.
Lawsky also proposed new preventative measures to stop banks from facilitating money-laundering, which has been a major focus of his enforcement efforts. In one of Lawsky's first major actions, he fined the British bank Standard Chartered $340 million after threatening to pull their charter to operate in New York over accusations that it had concealed billions of dollars of transactions with Iran in violations of American sanctions.
Mike Groll / AP
Lawsky said that DFS is "considering random audits of our regulated firms' transaction monitoring and filtering systems," to ensure that banks systems for catching illegal transactions are actually working.
When an independent monitor installed at Standard Chartered alerted DFS that the bank's monitoring systems weren't catching illegal transactions, DFS filitrered the transactions themselves and compared the results with Standard Chartered's. DFS fined Standard Chartered another $300 million last year for "failures to remediate anti-money laundering compliance problems" that it had identified in 2012.
"We believe there are likely widespread problems with transaction monitoring and filtering systems throughout the industry," Lawsky said.
He also called again for banks and financial institutions to be more vigilant about hacking and cyberattacks, saying that he was concerned about the potential for an "armageddon-type cyber event that causes a significant disruption in the financial system." While large banks tend to have sophisticated cyber defenses, the vendors they work with can provide a way in for hackers if they have weak defenses.
He said that DFS is thinking about mandating the banks it oversees "receive robust representations and warranties from third-party vendors that those vendors have critical cyber security protections in place."
He also said that the regulator was considering doing away with usernames and passwords as the primary method for bank employees to verify their identities. The New York Times reported in December that the massive theft of personal information from JPMorgan was possible because hackers stole a JPMorgan employee's credentials and one network server did not require two-factor authentication.
"That simple, extra step can actually prevent a significant amount of hacking. And it is something all firms should do," Lawsky said. "We are currently considering regulations that would mandate the use of multi-factor authentication for our financial institutions. We would be the first financial regulator to take this step."
Lawsky is far from alone in calling for an end to simple password-based security. In January a senior Obama administration official told reporters that "continuing to rely on simple usernames and passwords as the primary means to secure what we're doing in cyberspace is not all that effective."
The newly merged companies Kuaidi Dache and Didi Dache are considering bus-hailing and carpooling, in addition to a way to hail nearby designated drivers after a few drinks. And they’re confident they can beat Uber.
Tyrone Siu / Reuters
China's largest ride-hailing company is looking to move well beyond just taxis and limos to create a comprehensive transportation platform for the world's most populous country.
Earlier this month, Kuaidi Dache and Didi Dache ended their pitched battle for the No. 1 spot and merged to create a united company estimated to be valued between $15 and $20 billion, according to a company spokesperson (though earlier reports peg the combined entity's value at $6 billion). The merger combines the resources from Kuaidi Dache backers Alibaba — China's answer to Amazon — and SoftBank Capital with those of Didi Dache backer Tencent in a fight for the Greater China market.
With its deep pockets and newly expanded footprint, the company — which will continue to operate under both brand names — is looking to offer consumers more than just a way to hail a taxi or a limo. In an interview with BuzzFeed News, Kuaidi Dache chief strategy officer and co-founder Joe Lee said the company is exploring projects such as applying the mobile technology to hail buses — almost like a massive version of UberPool — and (curiously) giving people the option to hail nearby drivers to bring their cars home when they're drunk.
"With the big data we have collected we can do so many things," Lee told BuzzFeed News. Lee said the companies are also exploring carpooling — a service not readily available in the country. "In China people are lacking of trust of each other," he said. "But we already broke that lack of trust issue with the [feedback system] for riders and drivers. I think that we can use that [newly established trust] to also introduce carpooling."
Among the players vying for the same market is Uber, which recently received funding from Chinese web services company Baidu. But Uber is only operating in nine Mainland China cities, as opposed to the 350 that Kuaidi Dache alone is operating in, and Lee says the American company is inherently disadvantaged in China.
"Uber definitely is a very respectable player; it was one of the earliest players in the market," Lee said. "And Baidu definitely has a strong establishment. [But] this car service operation requires a very strong offline team. That service mentality has to be developed. Baidu is a search engine. It does not have a strong offline team and Uber definitely not."
Among the new ride-hail behemoth's advantages are its deep pool of drivers — 2 million, by Lee's estimate. It also has the considerable resources of Kuaidi Dache and Didi Dache's respective backers. Alibaba, for example, has Alipay, the leading third-party paying app in the country according to Lee, and Tencent is behind the leading instant messaging apps WeChat and Weibo.
"We have a lot of strategic resources," Lee said.
But the newly merged company also has another fundamental advantage over Uber: It's legal. The companies partner with fully licensed car rental companies, not private drivers — a fact Lee says facilitated the company's rapid expansion. Uber, otherwise known as "everyone's private driver," has been facing significant regulatory setbacks in the region, and while the company has seemingly overcome similar setbacks in the U.S., international markets and regulatory agencies won't necessarily cave to the company's demands in the way some local U.S. agencies have.
"From the government officials that I personally or my team has been in touch with, Uber doesn't have a very strong relationship with them and they don't know the policies," Lee said. "As you can imagine, the most important part is you have to spend a lot of time talking to the government."
The joint company is also considering using its new market share and resources to expand outside of the Greater China region. According to Lee, Kuaidi Dache has already had luck in Hong Kong, where it launched late last year. Lee said they expected to have a difficult time breaking into the market, which had several existing ride-hail players like Easy Taxi and Uber. But in a matter of months, Lee said, Easy Taxi bowed out of the Hong Kong market and Kuaidi Dache became the No. 1 player. "I am sure the way we have done things in China can be replicated in other countries," he said. "Our team has the international capability to move to different countries."
However, as BuzzFeed News reported, several Uber competitors around the world have floated the idea of a global anti-Uber alliance that may include things like cross-booking, or even a global network of taxi drivers. Potential players in the alliance include SoftBank-backed Olacabs and GrabTaxi, which both also operate in Asia. Just shortly after BuzzFeed News reported on the alliance, SoftBank Capital led a $600 million round of funding in Kuaidi Dache. And Lee confirmed there certainly have been talks — though nothing set in stone — among the players, including Kuaidi Dache and Didi Dache.
When asked whether the newly formed company's plan to expand beyond Greater China would jeopardize the potential alliance, Lee said, "As you can see in China, even two big competitors can merge with each other. Any kind of cooperation to any degree is feasible in the future. However we don't have a solid agenda. The talks haven't gone that far yet."
The leading health insurance lobby is getting behind New York’s attorney general, who has cracked down on the health insurance industry in the state. The case is against a drug company that they argue is using an illegal tactic to prevent competition from generic drugs.
Scott Olson / Getty Images
The country's top health insurance lobby is backing New York Attorney General Eric Schneiderman in his fight against a pharmaceutical company that produces a major Alzheimer's drug.
The pairing of America's Health Insurance Plans (AHIP) with New York's progressive attorney general is on its face unusual. Schneiderman has cracked down on the health insurance industry in New York during his time as attorney general. His office even set up a health care help line where New Yorkers can report wrongdoing by insurers or providers.
AHIP filed a brief Friday in support of Schneiderman's anti-trust case against Actavis, a pharmaceutical company that he sued last September over the company's decision to phase out an older version of its Alzheimer's drug before its rights to exclusively produce the drug expire.
Schneiderman and the insurers say that what sounds like a small thing — phasing out one drug for another — stifles competition in the marketplace from other drugmakers.
Actavis intends to transition patients from Namenda IL, an older form of the drug that is taken twice daily, to a newer, once-a-day drug called Namenda XR. The older, twice-a-day version of the drug is open to competition from generic manufacturers in July, but the new, once-a-day drug's exclusivity is significantly longer.
Critics call this practice "product hopping" or "product swapping," and they say it prevents generic competition by maneuvering around state and federal laws. In most states, pharmacists can and, in some cases, must replace typically more expensive brand named drugs prescribed by doctors with a cheaper generic option. If a pharmaceutical company makes a slight change to a drug — in this case the dosage — then pharmacists can no longer make the swap.
By ending mass production of the older drug in favor of the slightly modified version before a generic drug has had the opportunity to be introduced, a drug company effectively blocks a generic manufacturer from meaningfully competing in the market.
A federal judge ruled in December that Actavis had to continue to sell the older version of the drug Namenda while the court deliberated the merits of the case. Actavis is appealing that ruling.
In their brief filed with the Second Circuit Court of Appeals, AHIP argues that Actavis' actions burden health plans and consumers by contributing to the rise in prescription drug costs.
"This case is an example of what happens when drugmakers engage in anticompetitive behavior under the guise of innovation," AHIP spokesman Ben Jenkins told BuzzFeed News in a statement. "Forcing a product switch to protect a monopoly punishes consumers in the worst possible way by delaying the entry of more affordable prescription drugs into the market."
When asked about the unlikely alliance between the AG and insurers, a spokesman for AHIP said their attention has always been on improving "value and affordability for patients."
"That means there needs to be serious attention paid to the prices being charged for treatments and medications that drive up costs across the board, and in this case, necessary action when drugmakers promote a monopoly that harms patients and employers," Jenkins said.
AHIP's brief is one of 18 briefs filed in support of the state's case against Actavis, with the AARP and the American Geriatric Society also filing briefs along with other health care, physician, senior citizen, and legal groups.
"There is widespread concern about the public harm that may be caused by Actavis' attempt to force Alzheimer's patients off a drug they rely on, as is evidenced by the growing chorus of voices we hear today," said Attorney General Schneiderman. "We will continue our efforts to protect patients and the public from these types of harmful, anticompetitive acts."
A spokesman for Actavis told BuzzFeed News in an email that the extended release drug has "significant advantages" over the twice-daily version, writing, "Alzheimer's treatment requires a balance of ensuring the patient receives critical medicines, in a manner that lessens the burden on the caregiver and patient."
The spokesman added that a survey conducted by the company found that caregivers preferred the once a day drug.
No paperwork, no queuing at fluorescent-lit counters at midnight, and no bizarre pricing tricks. The Austin-based company is taking a shot at a stubbornly old-school industry.
Silvercar
The idea came, as so many have, on the golf course. Or it might have been in the clubhouse, just after a round a few years back, when a group of friends on a golfing getaway looked out at the parking lot and spotted the white Dodge minivan their airport rental car company had "upgraded" them to.
"It was like, 'How did we draw the white minivan for our Cool Guy Golf Weekend?'" Luke Schneider told BuzzFeed News in his office in downtown Austin, a bright second-floor loft space a few blocks from the Texas State Capitol building. "The thought was, what if there was a car rental company where all the cars were the same, and it was a great car, not a crap car? This all started from just one too many bad experiences at the car rental counter."
The result is Silvercar, the nearly three-year-old airport car rental startup based in Austin, of which Schneider serves as CEO. With nearly 100 employees and operating in seven airports across the country, mostly in the sunbelt (places like San Francisco, Phoenix, Miami, Dallas, and Los Angeles), Silvercar uses a mobile app to allow customers to book, access, unlock, and pay for their rental car — always a brand-new silver Audi A4. Everything is done through the app, and always for a fixed price: $89 a day during the week, and $59 on weekends.
The business eliminates paperwork, rental counter lines, fees for add-ons — like an extra driver fee, which Silvercar does not charge — and the gratuitous charges for refilling gas tanks, which often run north of $9 a gallon. The service also ditches the need to catch a shuttle bus to the rental lot — users hit a button in the app when they're getting ready to leave the airport terminal, and a car and driver pick them up and drive them to the lot within minutes.
Perhaps most important for some, there's no risk of ending up with a minivan, or any other less-than-desirable ride.
"One of the things that really pisses people off is not knowing what car they're going to get. We call it PT Cruiser roulette," said Schneider, who was poached from his role as chief technology officer of Zipcar by Silvercar co-founders Todd Belveal and Bill Diffenderffer shortly after their lightbulb moment on the golf course. "The airport car rental industry hasn't innovated in probably 40 years. We thought we should do away with counters, lines, and do it all on a mobile device, and take the brain damage out of getting to your car."
Schneider was uniquely qualified to build the Silvercar technology from scratch — at Zipcar, he was responsible for conceptualizing and building the popular urban car sharing service's mobile app, before rental giant Avis Budget swooped inand bought Zipcar in early 2013. Earlier in his career, Schneider spent years at Ford, where he worked on bringing new technologies into cars and helped create the first online marketplace to sell Ford models.
In isolating the variables around booking, paying for, and easily accessing a rental car, all while ensuring it's the same vehicle each time, Silvercar has capitalized on what car rental experts say is one of the most critical factors to long-term success in the industry: differentiation.
"In this business, it's been argued that the car rental industry is a commodity business, that the customer looks at every rental company the same," Neil Abrams, founder of car rental industry consulting firm Abrams Consulting, told BuzzFeed News.
"It's a battle that the rental operators continue to fight: to create differentiation. What's unique? Why am I special? What does our company have that another company doesn't have? Silvercar is a unique model: It's all done through smart devices and they're renting the same car at the same price, meaning they have one vehicle that makes up their entire fleet. That's their differentiator."
Silvercar / Via Facebook: silvercarinc
Late one recent Thursday evening, it took a BuzzFeed News reporter a little more than 10 minutes to exit the sliding doors of Austin International Airport's main terminal, catch a ride from a Silvercar concierge to the company's offsite lot, scan into a Silvercar with an iPhone, and hit Interstate 35 on the way into the city center. There were a few minutes of curbside waiting and a bit of fumbling with the windshield phone scanner, but the process certainly beat waiting for a rental car shuttle or standing in line at a fluorescent-lit counter as midnight approaches.
The Silvercar experience, as Schneider calls it, is certainly resonating with a number of frequent business travelers throughout the country. In the last year, Silvercar has experienced 30% growth month over month and an average of 1,000 of app downloads per day. The company is planning to expand "aggressively" into more markets this year, including Atlanta, Seattle, and Chicago.
At its current locations, Silvercar has managed to wrangle frequent car renters away from the upper echelons of loyalty programs at some the biggest names in the industry.
"I've been a Hertz customer for years, in the Hertz President's Circle, so I always got upgraded," AnnaMarie Daniels, vice president of regulatory and clinical affairs at health care company ReVENT Medical, told BuzzFeed News. "At Hertz that means you want an economy car, and they give you a minivan. I would show up late, tired, wanting to go to sleep, and the car would be dirty and have literally roll-up windows, but there was no alternative."
One day in December 2013, as she stood in line for express security screening at Los Angeles International Airport, Daniels saw an ad for Silvercar and decided to give it a try when she got to San Francisco. "The cars are just brand new and they're clean; you get the same model every time so you don't have to figure out how to try a new model. They also have bluetooth for your phone. I'm really spoiled — it's just so nice that they pick you up smiling and everything is new."
Daniels, who was introduced to BuzzFeed News by Silvercar, said she now uses the company an average of three times per month on her frequent business trips to the Bay Area. "I just love them," Daniels said. "I can't imagine changing unless they do something stupid."
Because Silvercar is still young and growing fast, it doesn't face the same amount of pressure to maximize profitability as the three largest car rental companies that dominate the $20 billion a year market — Hertz, Avis Budget, and Enterprise.
Much like the commercial airline industry in the U.S., the airport car rental industry has been consolidating for decades with these three major companies controlling 98% of the market, stifling competition, and resulting in little investment in new fleets, bad service, arbitrary price gouging, and fee add-ons, and a lack of technological innovation, all to keep expenses low and profits high.
"The car rental companies are still pressed to maximize profitability, which comes down to taking a risk, meaning overbooking," said John Thomas, a partner in auto rental industry consultancy Wilkinson Thomas Consulting. "So not getting the size or the model that you reserved is always a challenge because car companies are pushing the envelope of utilization, meaning customers are able to book a midsize car, when only a small car comes back in time."
Silvercar's guaranteed consistency of getting an Audi A4 every time eliminated this exact kind of guess work for Craig Lee, a business development executive for an Atlanta financial services company, on his bimonthly airport car rental endeavors.
"I travel to Dallas a lot for work, and that's where they were, so I gave it a shot," Lee, a Hertz and National veteran, told BuzzFeed News. "It's really more about, for me, just enjoying the Audi and the comfort and the convenience of getting into a car and getting moving, and I actually save time. It's mindless and I have the car that I want."
The country’s most selective university has some words of advice for students capitalizing on a little-known federal law.
A group of school kids tours the Stanford University campus in Stanford, California.
Ken Levine / Getty Images
Stanford has a message for students trying to view their confidential admissions records at the University: are you sure you want to see this?
After a Stanford student-run newsletter exposed a little-known federal law that allows students to see what college admissions officers had written about them, the school's admissions office was flooded with requests for the confidential data.
The documents, obtained under the Family Education Rights and Privacy Act, have the potential to shine a light on the highly secretive world of admissions at Stanford, the country's most selective university, and other schools. Under federal law, Stanford is required to produce students' records, which include essays evaluating students' personalities and characters, within 45 days.
But the university is apparently hoping to discourage many students from viewing all but the most basic parts of their application.
In an email to students who submitted requests for the documents, a university official writes, "The path to Stanford is not easy and the admission process is rigorous and critical. So please ask yourself: What benefit do I seek from reviewing these additional admissions records?... Will my life be better for having reviewed them?"
The email from the Stanford registrar's office, which includes details about how to withdraw requests, encourages students to read a recent Time magazine article about an alumnus' "own deflating experience when he reviewed his records" several decades ago. Joel Stein, the Time columnist who viewed his records in 1992, found comments on his admissions file that included, "He could drive you crazy," "Not appropriate" and "Hormonal overdrive."
But more recent admissions records at Stanford and across the country are likely to be far more tame; filled out electronically, they include numerical grades for things like character and rigor and brief evaluative essays.
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The “off-price” channel, home of discounted designer goods, is the place to be in retail. Macy’s plans to pilot a new off-price chain as well as expand its Bloomingdale’s outlet locations.
Macy's Facebook
TJ Maxx Facebook
The success of T.J. Maxx and Nordstrom Rack is pulling Macy's into the off-price chain game — and highlighting the pervasiveness of outlet culture in America.
The department store company, which announced plans last month to explore a set of off-price stores, said yesterday that executives are working on a pilot of a T.J. Maxx-like chain, as noted by Fortune. Notably, TJX, which owns T.J. Maxx, Marshalls, and Home Goods, today reported annual sales that surpassed Macy's for the first time ever, underscoring the strength of its treasure-hunting business model.
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Finally, the technology industry has developed a solution to a question that has plagued us for decades: How exactly do you feed a dog?
Pets are great, but feeding them? It's a challenge on par with the space program, and few have really mastered how to feed a dog.
There are so many variables to consider — what kind of animal is this? is it hungry? how much food should I give it? — that most of us just give up and don't feed our pets at all, leaving them to fend for themselves and find nutrition from couch cushions and strips of carpeting, like they do in the wild.
But no longer. A solution to the problem of feeding animals is being pieced together by Petnet, a Los Angeles tech company that has developed a kind of pet-feeding robot that connects, as all things must, to your iPhone.
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Wal-Mart’s announcement that it will raise its minimum wage came as the retail industry faces a rising number of workers quitting their jobs. Better pay is one way retailers can keep the people they already have, rather than constantly hiring new ones.
BuzzFeed/Bureau of Labor Statistics / Via cloud.highcharts.com
Here's one reason why big retailers have been making noise about raising their minimum wages: Their workers have been quitting at a rate last seen in the boom times before the financial crisis.
Wal-Mart, America's biggest private employer, made headlines last week for raising its minimum wage, becoming the latest in a string of companies upping the pay of their lowest-paid workers.
The decision, which followed similar announcements out of Gap and Ikea in recent months, underscores the fact that retail workers are getting harder to hold on to these days. The retail industry's "quits rate" — the number of people quitting from jobs in a month as a percent of total employment — has been climbing to levels last seen before the recession, according to the Bureau of Labor Statistics, which means companies may have to do more to keep employees happy.
The quits rate is seen as reflecting workers' willingness or ability to leave their jobs, which itself can be connected to the broader economic environment and the prospects of finding work elsewhere. After reaching highs during the heady economic times of 2006–07, it fell significantly during the recession and stayed low in the years of uncertainty that followed. It's now back to levels last seen in January 2008.
Wage increases at Wal-Mart and Gap, both to at least $10 an hour next year, are "in part due to escalating quit rates," Edward Yruma, an analyst at KeyBanc Capital Markets wrote in a Feb. 22 note. "We believe that other retailers in our coverage could be compelled to raise hourly rates to the $10 an hour level," he said, pointing to teen retailers in particular.
To be sure, retail and fast-food industry workers have been fighting aggressively for a higher minimum wage in the past few years, and many employees don't have the option of leaving low-paying jobs.
But, as the economy improves, and the unemployment rate drops to 5.7%, workers may have more options. Offering higher pay, better benefits, and training opportunities is a good way to keep them and to avoid paying the costs tied to hiring and retraining.
"A pickup in the quit rate, which also remains at a low level, would signal that workers perceive that their chances to be rehired are good" said Federal Reserve Chair Janet Yellen said in a March 2013 speech. "In other words, that labor demand has strengthened."
Joe Raedle / Getty Images
BuzzFeed/Bureau of Labor Statistics / Via research.stlouisfed.org
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Make franchise blockbusters or do not make franchise blockbusters, there is no try. And Willow Bay, wife of Bob Iger, gave a fitting tribute last night to what really makes Hollywood tick.
Walt Disney Studios
Mark Ralston / Getty Images
Darden Restaurants has tapped a company insider to take the helm of the Olive Garden parent just four months after an activist investor replaced its entire board.
Keith Bradford / Reuters
Darden Restaurants, the parent company of Olive Garden, Bahama Breeze, LongHorn Steakhouse, and a number of other casual dining chains, announced Monday it had appointed Eugene Lee as CEO. The move comes just more than four months after an activist hedge fund won control of the company's entire board in one of the most stunning proxy battle victories in the history of activism.
Lee has spent the last seven years at Darden, most recently as president and Chief Operating Officer and then as interim CEO following former Chairman and CEO Clarence Otis' resignation last summer after Darden's then-management sold off Red Lobster despite calls for a shareholder vote on the matter beforehand.
That set activist investor Jeff Smith and his hedge fund Starboard Value, which was already gunning for change at Darden, to launch a campaign to replace every member of Darden's board and install himself as chairman. Starboard won the proxy contest by a wide margin in October, and immediately set to work trying to find the right person to fill the company's top spot.
A board source told BuzzFeed News that Lee's selection of a Darden insider signifies stability and board harmony in working with legacy Darden leadership to bring about change at the company.
Since Smith's board slate took over, Darden's stock has risen more than 30% and currently trades around $61 per share.
In a statement Monday, Smith said Lee was the board's unanimous choice after it conducted a thorough search of quality candidates.
"Gene has already done a terrific job improving the energy and attitude inside Darden, and we expect the reinvigorated culture to improve," Smith said in a statement.
No word on whether Olive Garden will now salt its pasta water.
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In the summer of 2004, a 15-year-old boy, needy and eager for attention, was driven down a road that stretched through the endless flatlands of Maryland’s eastern shore. The boy, known in court records as R.R., arrived at a dirt driveway, where a sign on top of a wooden post announced Last Chance Farm.
Four separate couples lived at Last Chance Farm. All were related to one another and all earned money taking care of troubled children who had been placed in foster care, including R.R.
But R.R.’s new guardians weren’t directly supervised or paid by the government. They had been signed up as foster parents by a giant corporation called National Mentor Holdings, which, over the last three decades, has turned the field of foster care into a cash cow. At any one time the company has an average of 3,800 children and teenagers in its foster homes in 15 states around the country.
Stephen Merritt.
Wicomico County Sheriff's Office
Not long after R.R. arrived, Stephen Merritt, the boy’s new foster father, gave R.R. a beer. Then a cigarette. Soon a joint. When the boy was buzzed, his foster father slipped a hand into his pants to fondle him. Then he performed oral sex on the boy.
R.R. had courage. He told the caseworker overseeing his foster placement what was happening. But R.R.’s caseworker, according to the story R.R. told in court records, took no action. The caseworker worked for Mentor too, and instead of filing charges, or even removing R.R. from danger, the caseworker sent him back to Last Chance Farm. It was only after R.R. complained a second time, according to court documents, that Mentor took him from the home.
And there were more indications of sexual abuse at Last Chance Farm. A separate police investigation involving another child had taken place in 2003. Then another in 2006. A psychologist sent a letter to Mentor in 2010, warning of “a huge red flag" about Merritt’s interactions with a child.
Even so, the abuse continued, boy after boy. When the police finally descended in 2011, they found sex toys and lube scattered about and victims who told stories similar to what R.R. had told his Mentor caseworker seven years earlier.
The abuse at Last Chance Farm may have been an extreme event, but Mentor’s blunders in screening, training, and overseeing its foster parents are not. A BuzzFeed News investigation has found that the problems at Mentor are not limited to a few tragic cases but are widespread.
Few states make their evaluations of foster care providers public. But government assessments from three states show that Mentor has had troubling deficiencies in selecting, training, and monitoring its foster parents and foster homes.
At least six healthy children have died in Mentor custody since 2005, including the grisly murder of a 2-year-old in Texas last year whose foster mother swung her body into the ground like an ax, and in nearly all these cases there have been allegations that negligence by Mentor contributed to the deaths. Other children have been sexually or physically abused, sometimes after clear warning signs.
Many former workers say they believe the pressure to squeeze profits out of foster care is part of the problem.
Mentor officials strongly disputed the idea that their company provides substandard care or that the drive for profits hurts children. Dwight Robson, Mentor's chief public strategy and marketing manager, said the company has done an excellent job of protecting and caring for "literally thousands of vulnerable children whose lives we enhanced." He pointed to Maryland, where, in their most recent evaluations, state regulators gave the company high marks.
Indeed, many, probably most, of the company’s foster parents offer stable and loving care. Moreover, a comprehensive view of Mentor is virtually impossible, because America's foster care system is fragmented, administered by states and counties that typically do not share information publicly — or even with each other — often citing child confidentiality.
Still, in many places where statistics were available, Mentor stumbles, a BuzzFeed News analysis shows.
In Texas, Mentor ranks dead last among large foster care providers, based on the number of severe violations found by state inspectors. Over the last two years, Mentor racked up more “high” deficiencies — the worst kind — per home than any other provider with at least 200 homes. Mentor’s rate was 170% above the overall rate among other large providers.
In an interview with BuzzFeed News, Mentor officials contended the high rate could be attributed to the fact that the company has been under greater scrutiny than other providers. So BuzzFeed News calculated the company’s rate of severe problems per inspection, rather than per home, which Mentor agreed was a fairer measure. But that analysis didn’t boost Mentor much at all — it ranked third worst among the 23 providers with at least 100 inspections.
Texas regulators have found more than 100 serious problems over the last two years in Mentor foster homes, including multiple instances of children being slapped, hit with belts, and struck. A baby suffered a broken clavicle after being left unattended on a bed. Another child was taken by his foster parents to an “adult novelty store.” Regulators also found that several children had “inappropriate” sexual contact with members of their foster families. Several others were placed in homes where children were allowed to hit or physically restrain each other.
Mentor also ranks poorly in Georgia, which grades child-placing agencies on a 100-point scale. Mentor has six branches in Georgia. Over the 10 most recent quarters, not one scored an average grade above the median.
In Massachusetts, according to confidential data a children’s rights group garnered in a lawsuit, the company was faulted for 16 cases of abuse and neglect in just one 12-month period between April 2011 and March 2012. That included one fatality in January 2012, the death of a 2-month-old baby, after which a special state investigation found that Mentor foster parents and social workers “were not trained” on safe sleeping practices in caring for infants.
The company said that its scores in Georgia have improved, attaining an average of A- for the most recent quarter. And Mentor’s problems in Massachusetts have been fixed, Robson said. Safety, he said, is “job one.”
He also said that the company performs much better than other foster care operations when it comes to keeping children in stable foster homes where they can thrive, rather than moving them from home to home.
But former Mentor caseworkers and law-enforcement officials said they believe the company sometimes fails children because it is focused on extracting a profit from them.
“You feel the pressure. You have to make those targets,” said a former worker whose name, due to a signed nondisclosure with Mentor, could not be used. “I went there because I care about services for kids. I eventually became a machine that cared about profits. I didn’t care about kids.”
Mentor’s profit margins vary state by state. In Ohio, according to a 2012 spreadsheet obtained by BuzzFeed News, its profit margin, as measured by the common Ebitda method, has been as high as 44%. In Alabama, the document indicates that the margin has hit 31%. That would mean that only 69 cents of every dollar that the state government paid to Mentor was spent on caring for the child and on overhead. Mentor’s overall profit margin, according to its financial disclosures, has been a little over 10%.
Robson denied that the company’s margins ever came close to 31%, let alone 44%, though he declined to say what its margins are, state by state.
Mentor’s foster care business works like this: It receives fees from state and local governments for its services, and it uses some of that money to recruit, screen, and train foster parents, and to pay those parents a daily rate for caring for the children. The money is also used for administrative overhead and to pay the salaries of social workers, therapists, and other staff. But the former workers say that in a bid to increase profits, the company sometimes cuts corners on expensive services that are supposed to ensure the children in its care are safe.
Mentor social workers, for example, may be forced to carry a higher caseload of children than is recommended, sources say. In one affidavit in a court case in Illinois, a Mentor caseworker said she had a caseload of children twice as high as the generally accepted practice.
“Here’s how you cut services: caseloads,” one former Mentor worker told BuzzFeed News. “In therapeutic foster care you are supposed to have 10 kids. So you may have 15 kids. You may have to hire people without licenses because you can get away with it.”
Company officials are quick to dispute any allegations that the quest for profit can cut into the care for children. “We don’t water down services to maintain profits,” insisted the executive chairman, Edward “Ned” Murphy, in an interview. “The idea that we can systematically dilute the quality of services just does not work. We would be out of business.”
In Texas, one of Mentor's most grisly failings prompted a local prosecutor to call for a federal investigation of the company.
In a one-story rented house in Rockdale, in the cattle country northeast of Austin, a 2-year-old girl, blonde and playful, was murdered by her foster mother, Sherill Small, on a hot evening in July 2013.
Alexandria Hill had been taken from her young parents at the age of 1 by the state child welfare agency. The main reasons, Texas officials wrote at the time, were that her parents smoked marijuana around the child and her mother periodically suffered from grand mal seizures. That convinced the state caseworker she couldn’t care for Alexandria alone.
So the little girl ended up in Mentor’s custody. Texas paid Mentor just $39.52 per day for a child of Alexandria’s age, of which $22 went to the foster family. The company was having trouble finding foster parents.
In November 2012, the company placed Alexandria in her first foster home, where, according to confidential records obtained by BuzzFeed News, she appears to have suffered neglect. When that foster family brought the girl to a supervised visit with her birth parents, the parents were shocked to see that her hair was unwashed and uncombed. She was wearing pants stained with dried feces. Both of her legs were bruised.
Her young father complained to the state of Texas, threatening to call the police, and Texas state workers asked Mentor to place the girl in a different home. That’s when Mentor put her in the residence of 53-year-old Small.
Small spent her own childhood in foster care, and in 2012 she applied to Mentor to become a foster parent. Her maternal instincts were so questionable that even her own sisters were astonished when she was approved by Mentor. “She never even raised her own kids,” said Donna Winkler, one of Small’s sisters. “Her mother-in-law raised her kids, the young ones.”
Bill Torrey, the Milam County district attorney who would end up prosecuting Small for murder, said the company’s vetting process was shoddy. “They didn’t do their homework,” he said. “It was horseshit.”
One example of the gaping flaws in Mentor’s background research on Small: Amber Forester, Small’s daughter, said her mother and stepfather “will make great parents,” and that seemed to carry weight. Forester, after all, said she’d be spending time in the home once Small became a foster mother. But Mentor never requested a background check on Forester herself. If they’d asked for one, they would have learned that she had been convicted in 2002 of aggravated kidnapping and robbery after she and an accomplice kidnapped a pregnant convenience store clerk in 2000.
There were other issues. The Mentor “study” of the family shows that Mentor approved Small’s husband, Clemon, as a foster father even though he had been a longtime crack addict: “Mr. Small shared his past struggle with drug addiction, starting in 1980. He said his drug of choice was crack-cocaine.” He said he had last used the drug in 2000.
Mentor didn’t interview Small’s sisters, who said they would have warned the company.
Sherill Small.
Aram Roston / BuzzFeed News
Small was approved and began taking in foster children in September 2012, five in all. By December 2012, prosecutors later found, every one of them had been removed as “failed placements.” Small, according to an internal Mentor document obtained by BuzzFeed News, “reported feeling stressed out, and will express that she is unable to care for the children in the home.” The Mentor document also warns that personnel from the state’s Early Childhood Intervention (ECI) program “felt the children should not be in the home at that time.” It states, “ECI expressed concern about Mrs. Small being very frazzled and not certain what is going on with the children.”
Just a month after that report, in January 2013, little 14-month-old Alexandria Hill, fresh out of her first Mentor foster home, where she had been treated shabbily, was sent to live with the Smalls.
Torrey, the prosecutor, said he was astonished that Mentor would have placed Alexandria there. “How can you justify a report from your people that you apparently don’t read?” he asked. “It’s just a report? What, another piece of paper that goes in the file? No one looks at it? A sixth-grader would have known that you don’t put Alex Hill with these people, in light of Mentor’s own records!”
Mentor’s records, obtained as part of the murder case, indicate that Mentor officials claimed Alexandria was initially flourishing with the Smalls. In June officials wrote that Alexandria was “doing well” and that she is “healthy and playful. She enjoys playing with her toys. She loves to watch cartoons.”
Sherill Small’s sisters Diana Baines and Donna Winkler.
Aram Roston / BuzzFeed News
But Sherill Small’s sisters, Donna Winkler and Diana Baines, told BuzzFeed News the little girl was treated poorly. Winkler said Small “hated” the girl, while Baines said that when she visited the home, Small kept Alexandria in a barren room on the second floor where she was allowed to hold her teddy bear, and that was it. “She wasn’t hardly allowed to come outside her room at all,” Baines said.
Baines and Winkler said Mentor did conduct inspection visits, but that they were useless because the visits were always prearranged. Small tidied up the home in preparation, they said, and allowed Alexandria to watch TV so she’d be quiet while the Mentor worker was there. Meanwhile, there was another warning sign documented in Mentor’s own records: Alexandria was pulling at her hair so much she was going bald in spots.
On the afternoon of July 29, Baines visited Small’s home. She waved to little Alexandria, who was standing in a room called the “man cave” that had been formed from a renovated garage. Small told her Alexandria was on a time-out, being punished for waking up too early and taking food for herself. Winkler came by too, and heard the same story: The little girl was being punished.
It was later that day, in the evening, when Small and her husband called 911. When emergency workers arrived, the girl wasn’t breathing.
