David Heath stories from The Center for Public Integrity

EPA adds safeguards to spotlight conflicts on scientific panels

2013-05-03T17:14:40-04:00

The Environmental Protection Agency announced new safeguards Friday to prevent conflicts of interest or bias from tainting its science, including efforts to assess the dangers of toxic chemicals.

The reforms, targeting scientific review panels selected for EPA by outside contractors, follow a Center for Public Integrity-PBS NewsHour examination revealing ties between scientists and industry on a panel reviewing hexavalent chromium, a compound commonly found in drinking water that may cause cancer.

In that case, three panelists who urged the EPA to delay potentially stricter drinking water standards had been expert witnesses for industry in hexavalent chromium litigation. The scientists denied any conflict and said their input was based on research, but the case study revealed how the EPA is unaware of potential conflicts on its own panels.

Under its own process, the Center reported, the agency turns over the job of selecting panelists to private companies, which handle conflict-of-interest reviews in secret. All information the vendors collect, including financial disclosure forms, is “considered private and non-disclosable to EPA or outside entities except as required by law,” the EPA policy says.

The changes announced Friday add more layers of review — and provide more public disclosure — to the process.

Environmental watchdogs, who had questioned EPA's existing process, say the steps are overdue.

“It brings transparency to a process that wasn’t there before,” said Francesca Grifo, a senior policy fellow and expert on scientific integrity at the Union of Concerned Scientists.

One key change: After an EPA-hired contractor selects members of a scientific review panel, “the contractor will consult with EPA to review whether the contractor followed existing conflicts of interest guidance and requirements, and identify and provide input on any issues.”

That step adds an extra layer of review by EPA.

Also, the agency said, the names of chosen panelists will be publicly posted before any meetings take place.

The new steps do not change EPA’s existing standards for assessing conflicts, the agency said, but instead add sunshine to the process.

“This process will ensure that existing conflicts of interest guidance and requirements are applied correctly and where a potential conflict of interest is identified, allow EPA to determine whether the contractor’s plan to address the conflict is acceptable,” the agency said.

The EPA’s acting administrator, Bob Perciasepe, said Friday the new steps show the agency is “committed to scientific integrity.”

“Improving the contract-managed peer review process and increasing transparency will lead to stronger science at the agency,” Perciasepe said in a statement.

Richard Denison, a senior scientist at the Environmental Defense Fund, has been outspoken about industry influence at the EPA. Denison praised the EPA for bringing more openness to the process.

“The hexavalent chromium example was the major impetus for this revision,” he said.

Hexavalent chromium, best known as the toxic chemical compound from the hit film Erin Brockovich, is found in the drinking water of more than 70 million Americans, according to the Environmental Working Group.

New animal studies published in 2008 showed that mice and rats given high doses of the compound developed large numbers of tumors. The National Toxicology Program, part of the National Institutes of Health, cited the compound as a “clear carcinogen.”

The EPA planned to revise its assessment of the compound in 2011, even as a trade group, the American Chemistry Council, urged the agency to wait for industry funded studies. Several members of the peer review panel also urged the EPA to wait.

One was Steven Patierno, then a scientist at George Washington University, who was a consultant on ACC studies.

Another was Joshua Hamilton, a scientist at the Marine Biological Laboratory in Woods Hole, Mass., which is affiliated with Brown University. Pacific Gas & Electric Co., the company that polluted the water in Hinkley, Calif., with chromium, hired Hamilton as a consultant in 2009.

Hamilton said that just before the EPA peer-review panel met, PG&E asked him if he would go back to Hinkley to discuss the health effects of hexavalent chromium. PG&E said it paid Hamilton $110,000 for his work in Hinkley. Hamilton said he revealed the PG&E work to the private contractor hired by EPA, Eastern Research Group, and that the firm concluded it was not a conflict.

Officials with Eastern Research Group, based in Massachusetts, have not responded to interview requests.

Meanwhile, some members of Congress are pushing potential change to support industry.

The House science committee recently approved a bill to change the rules at the EPA for setting up scientific advisory panels. It would prevent the EPA from excluding people from panels with industry ties, as long as those ties are disclosed. It would also exclude panelists whose research is incorporated in the assessment. The bill is awaiting action by the full House.

How industry scientists stalled action on carcinogen

PG&E Corporation — 2013-04-16T11:08:27-04:00

HINKLEY, Calif. – Ten days before Christmas 1965, Pacific Gas & Electric Co. station chief Richard Jacobs walked a half-block on a dusty road lined with scraggly creosote shrubs to check out a neighbor’s toilet.

Jacobs carried with him a secret, something he referred to as the “chromate problem.”

Starting in 1952, the power company began mixing a toxic form of chromium with water to prevent rust at a new pipeline pumping station in Hinkley, a remote desert community united by a single school and a general store. PG&E dumped the chromium-laced water into a pond.

Lately there had been reports of problems with the neighbors’ wells. PG&E had just drawn greenish water from one well and discovered high levels of chromium. Now, retired farmer John Speth was complaining of greenish deposits in his toilet bowl.

Jacobs took a look in the bowl but assured Speth that PG&E had nothing to do with it. “When I left Mr. Speth,” Jacobs later wrote in longhand, “he was satisfied but still concerned about his water.” Speth died of stomach cancer in 1974.

It wasn’t until Dec. 7, 1987 — 22 years after that visit to Speth’s house — that PG&E finally told the local water board that it had contaminated the underground water. The company claimed it had discovered the problem just one week earlier.

From here, the story is familiar to anyone who saw the hit film Erin Brockovich. The corporate polluter was taken to court. The victims got millions of dollars. Problem solved.

But in reality, the “chromate problem” has not gone away. Today, tens of millions of Americans drink chromium-tainted tap water. Yet the controversy over whether people like Speth are dying of cancer from it is still being hotly debated.

Some of the most powerful voices in the debate are companies with a stake in the outcome. They’ve hired scientists to convince regulators that the chemical compound is safe. The lawsuit that Brockovich championed was merely the beginning of an intriguing tale about corporate manipulation of science.

In 2008, the National Toxicology Program, part of the National Institutes of Health, published groundbreaking research detailing how mice and rats that drank heavy doses of a toxic form of chromium called chromium (VI) developed cancerous tumors. The findings prompted the Environmental Protection Agency to act.

EPA scientists evaluated hundreds of studies and concluded that chromium (VI) likely causes cancer in people who drink it. The agency in 2011 was on the verge of making its scientists’ findings official — a first step toward forming more stringent clean-water rules. But last year it bowed to pressure and announced it was going to wait for new studies being paid for by the chemical industry.

To lead those studies, the American Chemistry Council, the industry’s main trade group and lobbyist, hired ToxStrategies Inc., a Texas-based firm with scientists experienced in poking holes in research that links chromium to cancer. The company describes its business this way on its website: “We often interact and collaborate with regulatory, academic and industrial professionals to ensure that the most appropriate science is incorporated into each assessment.”

Mark Harris and Deborah Proctor, two principal scientists at ToxStrategies, have a history of attempting to delay regulatory action on chromium. Starting in 1996, they were both leaders in the chrome industry’s efforts to dissuade the Occupational Safety and Health Administration from setting stricter rules for airborne chromium in the workplace. OSHA pushed back action for years despite decades of research showing that workers exposed to chromium were dying at higher-than-expected rates of lung cancer. The agency finally adopted a stricter standard in 2006 under pressure from a court order.

Proctor also worked on revising a 1987 study that concluded that Chinese villagers who drank water polluted with chromium (VI) had higher than normal rates of stomach cancer. With funding from PG&E, Proctor’s employer, ChemRisk, paid the Chinese author to help publish a new analysis of the data. In contrast to the earlier article, the new one concluded that chromium wasn’t the likely culprit.The revised study — which did not reveal the involvement of PG&E or its scientists — helped persuade California health officials to delay new drinking water standards for chromium.

Finally, with industry funding, Proctor worked to try to influence the makeup and findings of a scientific panel deciding whether California needed stricter drinking water standards for chromium. The panel concluded — to the surprise of many — that there was no scientific basis for believing that drinking chromium causes cancer. One-third of Californians have chromium in their water.

Proctor and Harris declined to respond to requests for interviews.

The use of science to delay regulation is part of a familiar pattern in the field of environmental science. Industry pays for research to address “data gaps.” Even when animals or people are believed to be getting cancer from exposure, industry scientists argue that the chemical in question is dangerous only at extremely high doses. Finally, they argue that you can’t determine a safe dose of a chemical unless you understand precisely how it causes cancer. Until all the questions are answered, they say, it’s not fair to ask industry to bear the cost of stricter rules.

“So now what is happening is the industry is trying to get scientists to slow down the EPA,” said Gary Praglin, one of the lawyers who sued PG&E on behalf of Speth and hundreds of others who had lived near the Hinkley pumping station.

David Michaels, an epidemiologist who now heads OSHA, has written extensively about this brand of science.

“Their business model is straightforward,” Michaels wrote in his book, "Doubt Is Their Product." “They profit by helping corporations minimize public health and environmental protection and fight claims of injury and illness. In field after field, year after year, this same handful of individuals come up again and again.”

Overwhelming evidence of lung cancer

Suspicions that chromium might cause cancer emerged in the late 19th century. In the 1950s, studies of factory workers exposed to airborne chromium showed much higher rates of lung cancer than expected. Thomas Mancuso, a pioneer in occupational medicine, continued to follow the workers at a chromate plant in Painesville, Ohio, for decades. In his final account in 1997, he reported that 23 percent of them had died of lung cancer. Other studies elsewhere confirmed Mancuso’s findings.

Given the overwhelming evidence that chromium particles in the air were killing people, PG&E’s challenge in the Hinkley case was to persuade judges on an arbitration panel that chromium traces in water were different. The company hired academic scientists, such as Steven Patierno at George Washington University, who testified that saliva and stomach acid render toxic chromium harmless, at least at levels that any human would drink.

Still, a few troubling studies at the time suggested that humans and animals may have developed cancer from drinking chromium. To address those studies, PG&E hired ChemRisk, a scientific firm that helped companies with legal or regulatory issues. The chief executive officer of ChemRisk was Dennis Paustenbach, a San Francisco scientist who has become the undisputed star of product defense.

Paustenbach declined interview requests. In a 2009 profile written by two University of Virginia professors, Paustenbach explains that he’s been driven since his modest upbringing to be financially successful, putting in 65-hour work weeks.

His work as a scientist has included advocacy from the start. Each week as a young toxicologist at a chemical company in Connecticut, he flew to the nation’s capital to lobby regulatory agencies such as the EPA. His relationship with the agency evolved and he later sat on numerous EPA advisory panels. For the past four years, he’s served on a panel overseeing EPA research.

A rare inside look at what Paustenbach does can be found in the minutes of a 1996 meeting in Pittsburgh of the Chrome Coalition, then the industry’s trade group. At the time, OSHA was proposing a big reduction in the amount of chromium dust allowed in the workplace. Paustenbach outlined a plan to prevent that from happening.

“Dr. Paustenbach suggested that … the Coalition may wish to approach the regulators with a program designed to fill a ‘data gap’ … to forestall the rulemaking,” the minutes read.

There was a discussion of ChemRisk possibly providing “confidential” and “pro bono” assistance to researchers at Johns Hopkins University to finish analyzing data for an EPA study of a Baltimore chromate plant. The EPA study was designed to answer questions left from Mancuso’s earlier work. At the same time, Paustenbach proposed writing an “anti-Mancuso manuscript” and critiquing all relevant workplace studies in an “effort of convincing OSHA not to go forward with what they presently have.”

Also attending the meeting were Proctor, who worked for Paustenbach at ChemRisk, and Harris, a former ChemRisk employee who at the time worked for Chemical Land Holdings, a company involved in a costly chromium cleanup. Both Proctor and Harris now work for ToxStrategies.

Paustenbach said in a recent statement to CPI and PBS NewsHour, “There is no evidence supporting any unethical conduct by ChemRisk scientist in regards to past work for the Chrome Coalition. The focus of ChemRisk scientists was solely on expanding the body of knowledge on which OSHA and other scientists could evaluate Chromium 6.”

In the end, the EPA study confirmed Mancuso’s findings that workers exposed to chromium were at a substantially higher risk of dying from lung cancer. Still, OSHA would wait more than a decade to tighten workplace standards for chromium under pressure from federal appeals court decision.

For the PG&E lawsuit, Paustenbach decided to conduct original research. Environmental science often lacks good human studies. Few people would volunteer to drink something potentially toxic to see if it would make them sick. Yet, that is precisely what Paustenbach did.

He and other scientists at ChemRisk sat for hours in Jacuzzis filled with chromium-laced water. They also drank chromium-contaminated water by the jug and then ran tests on their blood and urine.

ChemRisk scientist Brent Finley appeared on ABC News in 1996 to drink some of the yellow water, prompting correspondent Cynthia McFadden to say, “There are those who would say you drinking a gallon of this chromium-laced water doesn’t prove anything except that you — in some people’s minds — may be foolish.”

Paustenbach explained in his business school profile that he’s motivated in his work by what he sees as greedy lawyers using bad science to take advantage of corporations.

"Without a doubt, a large percentage of environmental and occupational claims are simply bogus,” he said, “intended only to extract money from those who society believes can afford to ‘share the wealth.’ "

Secrets of the 'Blue-Ribbon Panel'

Before the film Erin Brockovich even came out, the state of California was already taking steps to strengthen drinking-water standards for chromium. In 1999, scientists at the California Office of Environmental Health Hazard Assessment concluded that it was safe to assume that drinking chromium may cause cancer. They reasoned that breathing chromium was just another way the metal got into the body and caused damage. Plus, a 1968 study showed that 11 out of 66 female mice developed tumors after drinking chromium-laced water.

OEHHA’s next task was to figure out how much chromium a person could drink each day without exceeding a one-in-a-million chance of getting cancer from it. The agency computed a number that was 40 times lower than the existing U.S. drinking-water limit.

One industry consultant warned that if this standard became law, it would cost $11 billion to clean up California’s water, plus another $1.7 billion every year to keep chromium out of the water.

Before a new drinking-water standard could take effect, the state asked the University of California to set up a “blue-ribbon panel” of scientists to review the science. In August 2001, the panel issued a report that said there was “no basis” for concluding that chromium-contaminated water could cause cancer.

The panel dismissed the rodent study because an unrelated virus had killed many of the mice. It barely addressed the mounds of research on lung cancer.

The state agency concluded that it had little choice but to retract its chromium “public health goal” and wait. The state had asked the National Toxicology Program to do multimillion-dollar rodent studies on chromium. But the results wouldn’t be published for another seven years.

Questions soon arose about whether the blue-ribbon panel was biased. When the group held its only public hearing in July 2001, a lawyer for Hinkley residents, Brian Depew, attended. Depew said an environmental activist approached him afterward and later sent him a binder of documents that touched off months of investigation by Depew’s law firm.

The lawyers soon documented that Paustenbach initially served on the panel even though PG&E had paid ChemRisk at least $1.5 million during the lawsuits. Paustenbach said he didn’t appear at the public hearing and his name is not on the report.

The lawyers also learned from invoices and testimony that Exponent, the company where Paustenbach served as vice president and its most senior scientist, was being paid by an industry group focusing attention on the blue-ribbon panel. The Alliance for Responsible Water Policy was bankrolled by General Electric Co. and Lockheed Martin Corp., two companies entangled in chromium cleanups.

A strategic action plan for the Alliance dated April 6, 2001, and later disclosed in court records, listed as its strategy to “participate in state panel’s review of chromium 6, influence selection of panelists [and] provide input and information to panel.”

Proctor acknowledged in a deposition that she drew up a wish list of panelists and gave it to a lobbyist, Eric Newman. One of her colleagues, Brent Finley, also asked how he could get on the panel. Newman, who declined to comment for this story, responded to Finley in a March 31, 2001, email: “We will be lobbying hard for balanced representation. … It is critical that we get you, Deborah Proctor and/or other folks on the non-alarmist side of things.”

According to Proctor’s testimony, one of the names on her list was Joshua Hamilton, a Dartmouth professor working as an expert witness for PG&E. In 2011, Hamilton would be named to an EPA peer review panel for chromium (VI) and urge the agency to wait for new industry-funded studies led by Proctor. Hamilton, in a statement, has denied that he had any conflicts of interest while he served on the EPA panel.

When Paustenbach was named to the panel, Finley sent an email to Newman saying, “So, it looks like we got ‘one of our own’ on the panel.”

When asked whether Exponent was being paid by an industry-funded group for work related to the blue-ribbon panel, Paustenbach told CPI through a public-relations firm, “I have heard that this is true, but I do not know specific details because I did not participate in any work for the Alliance.”

Proctor, Paustenbach and other Exponent scientists quickly penned a review article that could serve as a blueprint for the panel, and Paustenbach shared it with the group. The article was paid for by Merck, another company involved in a chromium cleanup. The panel chairman, Jerold Last, sent an email to the group on June 14, 2001, saying, “I copied the third chapter pretty much verbatim from a review Dennis and his colleagues have in press, so we will want to do some revisions to eliminate the verbatim aspect.”

Paustenbach denied that the blue-ribbon panel’s report was merely copied from Proctor’s article. He told a California Senate committee investigating the panel that only “4 percent — exactly 4 percent — of the report was, in part, borrowed from a published paper by my colleague,” Proctor. Last, who did not respond to requests for comment, told the committee that what “started out as cutting and pasting … ended up being material that one or all of us reviewed thoroughly before we put it into the report.”

The major conclusions reached in the ChemRisk article and the state report were the same.

Paustenbach said that he disclosed his involvement in the PG&E lawsuit to Last but that neither he nor Last considered the PG&E work to be a conflict of interest. Still, because of concerns raised by an advocacy group, Paustenbach said he stepped down from the panel before the panel held its public hearing.

When the blue-ribbon panel report came out, Paustenbach attached it to an email to a colleague at Exponent saying, “Buy a good bottle of wine, pull up a chair, and then read this. Then say to yourself, ‘Yep, I really finally did something good for society...’ The world is now a better place to live.”

When a lawyer read the email aloud during a deposition, another scientist who served on the panel called it “sad.”

“This [is] about winning. It’s not about truth,” John Froines, a toxicologist at the University of California, Los Angeles, testified. “The world isn’t a better place to live. The world is actually a poorer place to live because of this. It makes people cynical about trusting in the science, and I think that’s really too bad.”

Froines quit the panel before it finished its report, saying he was concerned about panelists with ties to industry. But also, Froines simply didn’t believe the panel’s findings.

Chinese study revisited

Meanwhile, the California Environmental Protection Agency also had suspicions about the blue-ribbon panel.

Two studies highlighted in the panel report came from China’s Liaoning province, northeast of Beijing, where a smelter began contaminating the water with chromium (VI) in 1965. A doctor in the area cared for the sick for years and eventually counted the deaths from cancer. He published an article in 1987 in a Chinese journal, concluding that villagers who drank the tainted water suffered higher rates of stomach cancer.

A decade later, the same doctor published a new article in an American journal concluding that chromium most likely wasn’t the culprit.

The head of California EPA’s Office of Environmental Health Hazard Assessment, George Alexeeff, asked a new epidemiologist on staff, Jay Beaumont, to look into the studies. In recent interviews, Beaumont said he quickly found things that didn’t seem to add up.

For example, the revised article said stomach-cancer rates for the province weren’t available. But Beaumont had a colleague quickly track down the data at the University of California, Berkeley, library. Beaumont said the numbers came from the same source the Chinese doctor used for other comparisons.

Within a few days, Beaumont ran his own analysis and found that villagers who drank chromium-laced water were 85 percent more likely to have stomach cancers than were those who lived in the surrounding province.

Beaumont tried to reach the Chinese author, Dr. Zhang JianDong, but he had died in 1999. However, there was still a website promoting a book Zhang had written. Something caught Beaumont’s attention. The site revealed that Zhang was a consultant to McLaren/Hart Environmental Engineering Corp., the company that at the time owned ChemRisk.

Putting the pieces together, Beaumont wrote an email to his boss, saying that “the money to pay Dr. Zhang likely came from the industrial clients of McLaren/Hart who have a strong financial interest in the health effects evidence for Cr6. I don't know what Dr. Zhang was paid to do by McLaren/Hart, but republishing his study with different conclusions seems a possibility.”

PG&E now acknowledges it paid for the revised analysis, though records show only about $2,000 went to Zhang.

Two ChemRisk documents describe Zhang’s role as “research assistance” and “document review and consultation.” Meanwhile, a ChemRisk scientist named project coordinator was budgeted to be paid $13,500 to “interpret data” and “write reports” that were then to be edited by Paustenbach and Finley. The ChemRisk proposal linked the research to the PG&E lawsuit by saying that the new article “can be used as the foundation of a number of trial exhibits that summarize the absence of the association between cancer and groundwater exposure to Cr6.”

Proctor, the same scientist who recently conducted studies for the American Chemistry Council, billed for her time on the Chinese article as well, according to a deposition.

“What was important to PG&E at the time is that the science was accurate,” said Sheryl Bilbrey, now in charge of the cleanup in Hinkley for PG&E. “So we did fund that work, and I think it's unfortunate that when it was republished they didn’t acknowledge PG&E's involvement, because it really took away from the focus of the science and had more to do with the disclosure issue.

“PG&E's intention on any project is to make sure that we have the best science,” Bilbrey said. “These projects are incredibly important to us, and we want to get it right. So we looked to Dr. Paustenbach and his experts to make sure that the science was accurate.”

Paustenbach, through a public-relations firm, released a 9-page statement acknowledging that ChemRisk approached Zhang and another author to point out that “there were shortcomings in how these physicians interpreted their data.” The statement said that Zhang was surprised by the new ChemRisk analysis but agreed with it. The firm also released hundreds of pages of documents that included one signed by Zhang saying he agreed to the “editing and expanding of the original manuscript.”

Paustenbach’s recent statement says, “The record makes clear not only that Zhang prepared the report, but also that Zhang, fearful of political pressure from his government, indicated that acknowledgment of American researchers was not appropriate since it was his study.” Paustenbach testified in 2002, “We asked Dr. Zhang, in fact, to be coauthors on that paper for sake of transparency … Dr. Zhang, on his own decision, chose to keep that as a singular authorship.”

None of the documents Paustenbach provided CPI indicate that Zhang explicitly objected to other names being listed as authors.

Despite the question of authorship, scientists at California’s OEHHA said they took the new study at face value. Still, they rejected its findings.

“The ’97 study basically concluded that there was no association between chromium (VI) in the drinking water and cancer cases among the Chinese villagers, in large part because the villages that were more distant from the source of the drinking water contamination had higher cancer rates,” said Allan Hirsch, OEHHA’s deputy director, in a recent interview. “People closest to the facility may not have been drinking the water, because it was yellow and unpalatable.”

In a recent statement, Paustenbach characterized the California EPA's analysis as "flawed and incorrect."

The Journal of Occupational and Environmental Medicine retracted the article. Journal editor Paul Brandt-Rauf said in a recent interview with CPI that the article violated its policies by not revealing all of the significant authors or the funding.

Paustenbach said through a spokesman that the rules did not require disclosure because the amount paid Zhang was so small. However, Brandt-Rauf rejected that explanation.

The Environmental Working Group, an advocacy organization, did its own investigation of the Zhang study and was troubled by what it found. "I mean, this really is a story about science for sale," said Heather White, executive director of the group.“It’s shocking.”

EPA faces industry pressure

In 2008, the National Toxicology Program published the results of its rodent studies. High numbers of the mice and rats developed tumors in their oral cavities and small intestines. The NTP concluded that there was “clear evidence” that drinking chromium (VI) causes cancer. At about the same time, the California EPA took the nearly unprecedented step of publishing its own findings on the Chinese study.

Both the federal and California EPAs began preparing scientific assessments based on the new research. Both would come to the same conclusion. Hexavalent chromium is safe only in miniscule doses.

Yet the American Chemistry Council planned to have a number of new studies ready just before the EPA was scheduled to issue its final assessment. The ACC urged the EPA to wait until the agency could digest the new data. The scientists at ToxStrategies proposed studies to address “data gaps” in the NTP study.

It was a move harkening back to the Chrome Coalition meeting in 1996 that Proctor and Harris attended. When she worked for Paustenbach, Proctor published a series of articles about workers in the same plant that Mancuso studied for decades, but her conclusion was quite different. Her studies concluded that OSHA did not need to tighten its standard to protect workers.

In the end, OSHA adopted a stricter standard, but critics argue that it’s still too high. By OSHA’s own calculations, 10 to 45 workers out of 1,000 are expected to get lung cancer in their lifetimes from the current exposure limit.

The California EPA, which had already delayed a chromium assessment for a decade, refused to wait for ToxStrategies’ studies, saying, “It would be very difficult for OEHHA to justify further delay.”

California’s assessment of chromium went through not one, but two peer-review panels. Some of the independent scientists questioned whether the safe-dose level was actually too high, so OEHHA lowered it. The agency issued its public-health goal on chromium (VI) in July 2011.

At first, the head of the EPA’s chemical-assessment program, Vincent Cogliano, also refused to wait for the ToxStrategies studies. But five of nine peer reviewers selected by a private contractor urged delay. One of the reviewers was Steven Patierno, a former PG&E expert witness who served as a consultant on the ToxStrategies’ studies.

In January, the NTP published new research from its rodent studies that challenges Patierno’s contention that saliva and stomach acids render chromium (VI) completely harmless, undermining the theory that chromium is dangerous only in high doses.

Celeste Monforton, a professorial lecturer at George Washington University’s School of Public Health who has written about industry scientists’ influence on chromium policy, said that, based on her own experience working with agencies, regulators are aware that research done by industry is often an attempt to delay.

“Some people at EPA understand that and know that,” she said. “It takes the political will to stand up to that.”

In the Hinkley lawsuit, judges more 16 years ago considered the scientific arguments and ruled against PG&E. In essence, they concluded that the contaminated water in Speth’s toilet was capable of causing cancer.

Froines, the UCLA scientist who resigned from the blue-ribbon panel, said it’s time for public health agencies to do the same.

“At this point, we shouldn’t be debating the carcinogenicity. … We should be at a place where we’re looking for alternatives to the use of chromium,” said Froines, who has evaluated more than 400 chemicals for a California advisory panel he chairs. “You’re dealing with people’s lives.”

Miles O'Brien, science correspondent for the PBS NewsHour, contributed to this story

EPA unaware of industry ties on cancer review panel

2013-04-16T11:08:27-04:00

In September 2010, scientists at the Environmental Protection Agency came to a startling conclusion: Even a small amount of a chemical compound commonly found in tap water may cause cancer.

The compound, hexavalent chromium, gained infamy in the Oscar-winning film Erin Brockovich, based on the David-vs.-Goliath legal duel between desert dwellers in Hinkley, Calif., and Pacific Gas & Electric Co. The film ends in Hollywood fashion, with the corporate polluter paying $333 million to people suffering from illnesses.

But in real life, the drama continues. More than 70 million Americans drink traces of chromium every day, according to the Environmental Working Group, a nonprofit research organization.

And now, more than a decade after the film, EPA scientists cite “clear evidence” that the chemical compound, also known as chromium (VI), can cause cancer. The federal agency was poised to announce its findings in 2011, a step almost certain to trigger stricter drinking-water standards to prevent new cancers and deaths.

The chemical industry’s trade association and chief lobbyist, the American Chemistry Council, urged the EPA to wait for more research, a common practice to delay action on toxic chemicals. However, Vincent Cogliano, the soft-spoken head of EPA’s chemical-assessment program, rebuffed the powerful group, writing in an April 2011 letter that “strong” new research was already available.

Ten months later, the EPA reversed itself, quietly posting a notice on the Internet that it was pushing back the release of its findings for at least four more years. Environmentalists were stunned at the reason: The agency would wait for the results of new studies costing $4 million and paid for by the American Chemistry Council.

The EPA decided to wait at the urging of a panel of scientists chosen to give an unbiased review of the chromium findings. But the EPA doesn’t vet these scientists directly, instead handing the task over to outside contractors. An investigation by the Center for Public Integrity found that several of the panelists had worked on behalf of PG&E to defend the company in the Brockovich lawsuits.

President Obama pledged during his 2008 campaign to halt meddling and interference in government science. The president put restoring integrity to science on his short list of priorities in his first inaugural address, right after fixing the economy and before health care reform. “We'll restore science to its rightful place,” he said.

The story of chromium (VI), full of twists and turns, offers a case study in how the Obama administration has failed to shield science at the EPA from industry influence.

Companies with a stake in chromium have borrowed from the Big Tobacco playbook, using science to create doubt. Ever since the brassy Brockovich knocked on doors in Hinkley to organize a class-action lawsuit, scientists paid by industry have tried to convince the courts and regulators that chromium (VI) poses no health risk.

Some of those scientists ended up on the panel chosen to review the EPA’s chromium findings, the Center for Public Integrity found:

Three of the five panelists who urged delay had worked on industry's behalf in the Hinkley court cases.

One of those scientists was retained by PG&E in the company’s ongoing chromium cleanup in Hinkley at the same time he was serving on the EPA panel.

Another scientist who urged the EPA to wait for the American Chemistry Council studies served as a consultant on those studies.

“You don’t have to be a rocket scientist to realize that this is corrupt and unacceptable,” contends Rena Steinzor, a law professor at the University of Maryland and president of the Center for Progressive Reform, a think tank that recently published a report on the chemical industry’s influence.

Those members served on the EPA’s toxic-chemical-assessment program, the Integrated Risk Information System. IRIS, as it is known, is the pure science upon which clean air and water rules are based. But IRIS has become a major bottleneck, delaying new federal and state air and water standards amid industry influence and other factors. Critics say the EPA has only itself to blame.

Since October, EPA Administrator Lisa Jackson has declined interview requests to discuss IRIS or loopholes that open the door for potential conflicts of interest. Yet Jackson is pushing reform before she leaves office this week that would address some of the conflicts unearthed in the Center’s review, and cited by environmental activists.

And recently the EPA decided to move up its timetable to complete its chromium assessment to later this year.

Case study of industry’s muscle

The issue of scientists with industry ties serving on special EPA peer review panels goes beyond chromium. One out of every six scientists appointed to such panels since Obama took office had been a primary author of research articles funded by the American Chemistry Council over the past dozen years.

In all, 11 of the 68 members appointed to EPA panels assessing chemical health hazards were significant authors on studies funded by the ACC, a review of the council’s research database reveals. That number does not capture all scientists backed by industry, just those with work funded by the ACC. The authors of the hexavalent chromium studies, for example, are not included.

One scientist who has served on several EPA panels and co-written more than a dozen ACC-funded studies said that working with industry does not necessarily suggest a conflict.

“Scientists by and large want to get at the truth, so this really becomes more a matter of a perception of a problem than a real problem, in my opinion,” said Frederick J. Miller, an independent consultant who once worked at the Hamner Institutes for Health Sciences, a North Carolina research institute formed in the 1970s by leaders from 11 major chemical companies.

“The people that serve on these panels … know if somebody is trying to make an argument that doesn’t hold water,” said Miller, who began his career in government.

However, studies have shown that when industry pays for research, it may influence the outcome. A 1998 analysis of more than 100 articles published on secondhand smoke reported that 37 percent found no health risk. At least 74 percent of the articles exonerating cigarette smoke were written by scientists with ties to the tobacco industry.

The American Chemistry Council has a stake in the outcome of research. Lobby disclosure forms from 2011 reveal that the ACC lobbied the EPA on its assessments of three highly controversial chemicals: dioxin, formaldehyde and chromium (VI). The group boasts on its Web site that “in 2012, we helped defeat or amend 281 chemical regulation and product ban proposals.”

The ACC, whose members such as ExxonMobil, Dow Chemical, Merck and Procter & Gamble are a who’s who of the Fortune 500, is one of the freest-spending lobby groups on Capitol Hill. In 2011, it laid out $12.6 million on lobbying, four times the amount spent by the National Rifle Association.

David Fischer, a senior director at the ACC, defended the group’s research program. “We feel we have an obligation to step up and fund studies to assist the agency — whether it’s EPA or others — to answer questions that might be posed about chemicals that we manufacture,” he said.

Asked if any of the ACC’s studies had ever shown that a chemical was more toxic than previously thought, Fischer replied, “I'm not aware of one right at this moment.”

The ACC said it was not involved in selecting the peer reviewers studying chromium (VI). “EPA's peer reviewers were selected by EPA. They were vetted in the normal peer review process from EPA and we from the ACC do not have any direct links to these people,” said Ann Mason, the ACC scientist who commissioned the group’s new studies on chromium.

However, few scientists in the world specialize in chromium, a compound used to add color to paints, make stainless steel, add finish to chrome and inhibit rust. During its lawsuits, PG&E hired several of these scientists as expert witnesses; some say the debate over the compound’s toxicity caused lasting splits in the tight-knit scientific world.

One of PG&E’s key experts was Steven Patierno, a former professor of pharmacology at the George Washington University School of Medicine and Health Sciences who had conducted numerous studies on the metal. Patierno, now the deputy director of the Duke Cancer Institute, has been an expert defense witness in seven chromium lawsuits. He hasn’t wavered in his view that drinking low doses of chromium (VI) does not cause cancer.

By early 2011, Patierno was selected for the peer review panel critiquing the EPA’s chromium (VI) findings. At a public meeting on May 12, 2011, he revealed a potential conflict of interest. There’s no recording or transcript of the meeting. Nothing in the EPA’s public record reveals the conflict. Two EPA officials who were there say they cannot recall what Patierno said. Patierno himself declined requests for an interview.

Jennifer Sass, a senior scientist at the nonprofit Natural Resources Defense Council, took notes at the meeting and said that Patierno revealed he was an investigator — though not a principal investigator — on the American Chemistry Council studies.

The ACC’s Mason disputes that Patierno was involved. But Travis O’Brien, one of the principal investigators on the studies and a former colleague of Patierno’s at George Washington University, told the Center for Public Integrity that Patierno was a consultant on the research.

Max Costa, now a professor at New York University’s medical school, knows Patierno well. When Costa taught at the University of Texas Medical School, Patierno worked in his laboratory. The two published research together. Costa said they became rivals when they took opposite sides in the PG&E lawsuit.

He argues that Patierno’s opinions are not credible because he works for the chrome industry. “He’s been a paid a large amount of money by them, and he’s totally biased because of that.”

Patierno levels the same charge against Costa, attacking his conclusions in a lawsuit as “unsubstantiated” and “severely flawed.” Patierno criticized the EPA for even citing Costa’s papers among hundreds of others in its report. In his peer review comments, Patierno said two of Costa’s articles should not be taken seriously because “they were written and published at a time when the senior author was actively engaged as an expert witness for the plaintiffs in high-profile hexavalent chromium lawsuits.”

Patierno was an expert witness for PG&E in the same lawsuits. When he was asked in a 2006 lawsuit if he discloses his expert-witness work for industry when submitting articles on chromium (VI), he answered no. Patierno said his articles were based on laboratory studies that were not relevant to his legal work.

Costa was originally listed as a candidate for the EPA peer review panel, according to documents obtained by the Center through a Freedom of Information Act (FOIA) request. Costa says he disclosed his work in the PG&E lawsuit but doesn’t know if that work disqualified him. An EPA official said privately said that Costa’s work as an expert witness may have kept him off the panel.

Industry ties and EPA panel

Patierno was not the only defense litigation expert who served on the EPA’s IRIS panel. Two others were John P. Wise Sr., a toxicology professor at the University of Southern Maine, and Joshua Hamilton, a chief academic and scientific officer at the Marine Biological Laboratory in Woods Hole, Mass., which is affiliated with Brown University.

Wise, who worked in Patierno’s laboratory as a graduate student, said that in 1997 he worked for a consulting firm and was assigned to do research for an industry client in the Hinkley lawsuit – but that he has not accepted industry money in the past 15 years. Wise added that he was never told the identity of the client and that he does not believe "such limited contact so long ago" influenced his opinion.

Hamilton was a defense expert in a PG&E chromium lawsuit that settled in 2006 and worked for the company as a consultant again starting in 2009, according to PG&E. PG&E acknowledged that it hired Hamilton in May 2011 — the same month the EPA panel met — to consult on the ongoing chromium cleanup in Hinkley. PG&E said it paid him $110,000.

Hamilton appeared before a California Regional Water Quality Control Board on June 8, 2011, to speak on behalf of PG&E about its cleanup of Hinkley. The EPA peer review panel issued its final comments one month later, on July 6, 2011.

Hamilton’s consulting work included criticism of the California EPA’s own scientific assessment of chromium (VI), which was nearly identical to the EPA’s.

In an eight-page statement to the water board dated July 9, 2011, Hamilton wrote that the state agency’s findings did not represent “established science.” He described California’s regulations as “overly protective.”

The PG&E director in charge of the Hinkley cleanup, Sheryl Bilbrey, said Hamilton’s work should not have affected his objectivity. “PG&E expects all of our experts to give us unbiased advice,” she said. “So we would never ask anyone to change their scientific opinion to fit something that we would want.”

Asked whether it was appropriate for an EPA peer reviewer to be working simultaneously for PG&E, the ACC’s Fischer said, “That sounds like a conflict of interest to me. Generally, the way you get around it is you just — you don’t appoint that particular scientist to that particular panel.”

It was not the first time Hamilton had been paid a substantial sum by PG&E. In 2001, Hamilton said he was surprised to get a $100,000 check in the mail before doing any work as an expert witness. According to his deposition, Hamilton talked to PG&E’s lawyers about the check and learned that it was on top of his hourly fee. PG&E ultimately paid Hamilton nearly $300,000 for his work on the lawsuit.

(Hamilton has since disclosed that he repaid the $100,000; see editor's note below)

“That’s completely outrageous,” said Francesca Grifo, director of scientific integrity at the nonprofit Union of Concerned Scientists. “I don’t know how anybody could stand up logically and say I got $100,000 but it didn’t affect how I handled this.”

Hamilton declined interview requests.

EPA farms screening to consultants

Working for a chemical company appears to violate the EPA’s guidelines on conflicts of interest. The EPA’s Peer Review Handbook says peer reviewers should appear to be impartial, defined as not having anything that “may cause a reasonable person with knowledge of the relevant facts to question the expert’s ability to carry out official duties without bias or influence.”

The handbook offers, as an example of a conflict, a scientist paid to be an expert witness for a chemical company in a class-action lawsuit.

Yet, the EPA doesn’t ask scientists if they’ve worked as expert witnesses or have taken money from industry. Instead, it turns that job over to private companies, which handle conflict-of-interest reviews in secret. All of the information the vendors collect, including financial disclosure forms, is “considered private and non-disclosable to EPA or outside entities except as required by law,” the EPA policy says.

The contractor examines candidates’ published work, and prospective panelists fill out a questionnaire detailing potential conflicts. Once the panel is picked, the contractor certifies to the EPA that “no unresolved actual or potential conflict of interest issues” remain.

What’s more, the ethics guidelines are not binding on contractors, and the EPA handbook says the agency should not override decisions on conflicts of interest. “EPA should not attempt to make any changes in the contractor’s conclusions as this would compromise the independence of the peer review conducted by the contractor,” the handbook says.

The EPA said it set the system up this way to ensure impartiality. But, the Center found, this structure helps shield the very conflicts the agency aims to avoid.

A year ago, the Center sought information on the screening of IRIS panelists through a FOIA request. The EPA withheld most documents, including emails between the vendors and agency.

Officials at Eastern Research Group Inc., the Massachusetts firm that vetted the peer reviewers on the chromium (VI) panel, did not return emails and phone calls. An official at another company handling peer reviews, Versar Inc., said he was prohibited by EPA from talking.

The EPA’s administrator, Jackson, and its chemical-assessment officials declined requests for on-the-record interviews. But an EPA official acknowledged privately that the agency was not fully aware of the chromium (VI) peer reviewers’ ties to PG&E. The official defended the use of private vendors, contending that if the EPA chose peer reviewers, it could pick scientists it knew would be friendly.

However, the EPA routinely selects scientists for other advisory panels. Critics said it’s not clear how checking financial disclosure forms would taint the process. The Peer Review Handbook does note that checking disclosure forms would activate the Federal Advisory Committee Act, a law meant to make panels more open.

“It’s bizarre,” Grifo said of the EPA’s secretive screening process. “At its core it’s supposed to increase the public trust in the system. If it looks like the whole system is rigged to begin with, then why should a citizen trust it?”

The EPA said it was working to reduce the potential for conflicts. “We are exploring the best ways to provide for public review of contract-managed peer review panels and ensure that contractors are held accountable for their assessment of any conflicts of interest,” the agency said in a statement.

The ‘pure science’ bottleneck

Some 700 new chemicals hit the market each year, adding to the tens of thousands already in use. Yet the EPA has assessed only 557 chemicals since the IRIS program began in 1985. A typical review takes six to eight years, sometimes much longer. It took 27 years for the agency to issue a partial assessment of dioxin, a byproduct of plastics manufacturing and burning.

The Government Accountability Office (GAO) concluded in 2008 that the IRIS program was so bogged down that it was in danger of becoming obsolete.

In 2009, EPA Administrator Jackson made bold promises within her first weeks in office to fix the program. She pledged to finish many more assessments and to try to complete each one within two years. Since May 2009, the EPA said it completed 24 IRIS assessments, “double the number” completed in the same time period prior to May 2009.

Yet its overall progress remains slow, and in the past two years, the program produced as few assessments as ever. Last year, the EPA planned to complete 40 assessments. It finished three.

The reasons for the logjam are complex. But it has become common for industry and its allies inside the federal government to push for delay. “Even a single delay can have far-reaching, time-consuming consequences, in some cases requiring that the assessment process essentially start over,” the GAO reported.

In the case of chromium (VI), evidence shows that industry worked closely with the EPA as the agency conducted its assessment. On Oct. 8, 2009, a scientist at a law firm representing chemical companies complained in an email that the EPA was pushing ahead on its assessments without waiting for studies to address “gaps” in the science.

“EPA moved Chrom VI up by about two years after ‘we’ entered into a process of planning research with them to address gaps,” wrote Richard Canady, a former scientist at the White House’s Office of Management and Budget (OMB), who was then working at the private law firm of McKenna, Long & Aldridge. “I’d like to make a case for EPA planning ahead in cooperation with industry.”

Canady’s email was sent to Nancy Beck, a toxicologist at OMB who reviewed the EPA’s findings. Beck referred Canady to an American Chemistry Council official for help in gathering data. A 2009 investigation by a subcommittee of the House Science and Technology Committee criticized Beck for improperly interfering with IRIS assessments during the George W. Bush administration. Beck now works for the ACC. She did not return a call last week seeking comment; an ACC spokesman said Tuesday he would seek her perspective.

In a recent interview, Canady said he could not recall the precise details from his email and declined to reveal clients for which he was working. But Canady said he thought the process of planning research with the EPA “wasn’t that formal.” Instead, industry scientists would call EPA scientists to find out what new data would help them in their chromium (VI) assessment, he said.

His 2009 email also said, “Peter made a point to me the other day about how boron and methylene chloride were good examples of working together on developing data ahead of assessments in ways that influenced the outcome.”

Canady said this was a reference to Peter Preuss, then the director of the EPA’s National Center for Environmental Assessment, which oversees IRIS.

The EPA originally planned to issue its chromium (VI) assessment last summer, giving the ACC time to finish its new studies. However, under Jackson’s imperative to quicken assessments, the EPA moved up its timeline by six to nine months.

When the EPA’s Cogliano rebuffed the ACC’s request for a delay, the trade association turned its attention to the peer review panel.

Critics say the industry uses comments on chemicals that are under review to overwhelm the agency.

“There’s a very elaborate process that involves multiple opportunities for industry to pick away and blast away and confuse and overload the staff of IRIS, and the IRIS staff reacts by trying to address each and every one of industry’s concerns,” said law professor Steinzor.

“The chemical industry has made IRIS its leading target, one of its leading targets, for spoil in the current age of greed,” Steinzor said

Of the 49 public comments submitted to the EPA on chromium before the peer-review panel met, the American Chemistry Council and its research partners authored 29 of them, totaling 1,661 pages. In addition, 10 other comments totaling 137 pages came from industry urging the EPA to wait for the ACC studies.

As the EPA stood poised to announce potential new safeguards for chromium (VI), the ACC had hired a scientific consulting firm, ToxStrategies, to manage the $4 million studies of mice and rats given the chemical for 90 days.

The panel met May 12, 2011, at a Hilton hotel near Reagan National Airport. Patierno was highly critical of the EPA’s findings and suggested the agency “absolutely consider the extensive new data being provided.” Hamilton and Wise agreed.

In a recent interview, Wise said he wasn’t entirely familiar with ToxStrategies’ findings, which hadn’t yet been published. But he assumed the delay would be short, only a few months. The EPA initially said the delay would take four years. Later, the agency said the assessment would be done this year.

Anatoly Zhitkovich, a professor at Brown University who chaired the EPA peer review panel, was upset with the results and wrote his own review published in the journal Chemical Research in Toxicology, according to Costa, a close colleague. Zhitkovich declined an interview request, but his article supported the findings of the EPA.

In lobbying for delay, the American Chemistry Council quietly enlisted the help of a small office within the U.S. Small Business Administration.

SBA Chief Counsel for Advocacy Winslow Sargeant, an electrical engineer by training, submitted a comment to the EPA on Oct. 5, 2011, challenging its scientific conclusions and urging it to delay its chromium assessment pending completion of the ACC studies. Winslow cited the peer review comments from Hamilton and Wise to support his argument.

But emails obtained through FOIA by the advocacy group Center for Effective Government revealed that the ACC helped shape the SBA letter. An ACC lobbyist, Randy Schumacher, sent an email to Sargeant’s office on June 28, 2011, asking for its help.

“Administrator Jackson calling upon her to stop the Cr6 risk assessment process to do exactly as EPA’s peer reviewers deemed advisable,” Schumacher wrote. “Since it appears EPA needs to hear from more constituents for it to listen to its own peer review team, would SBA be willing to send a letter to Ms. Jackson to weigh in on this matter?”

Later emails from Schumacher suggested editing changes to Sargeant’s letter. The SBA official has not responded to interview requests.

Frustration prompts reform push

Now the EPA is in the process of revamping its IRIS program once more. Cogliano has proposed releasing the names of prospective peer reviewers in advance, giving the public an opportunity to explore conflicts. “This will improve transparency in the peer review process,” the EPA said in a statement. The changes could be formally announced this week, as Jackson departs.

The ACC’s Fischer says he’s in favor of a conflict-of-interest policy that allows industry to participate on peer review panels. “Bias in and of itself should not necessarily disqualify a particular scientist from serving on the panel,” he said. “Industry perspective is a bias but so [is] every other perspective.”

The EPA is also weighing whether to set “stopping points” for new research, a deadline after which no additional studies would be considered. Kenneth Olden, a senior EPA official who oversees IRIS, has proposed announcing assessments two years in advance, giving industry time to complete new studies.

Such proposals drew criticism at an EPA meeting in November, with an environmental group’s scientist stating bluntly that industry seeks delays because it wants IRIS to fail. His comments drew faint gasps from a conference room filled almost entirely with industry consultants.

“The practice of waiting for one more study to be completed, as has happened repeatedly under IRIS – especially when that study is to be conducted by an entity with a vested financial interest in tilting the outcome – simply must stop,” said the scientist, Richard Denison, with the nonprofit Environmental Defense Fund. “Simply put, a decision delayed is health protection denied.”

This story has been clarified to reflect that, as an employee of a consulting firm, John P. Wise Sr. worked for an industry client in the PG&E lawsuit but that he was never told the identity of the client. After the story was published, Joshua Hamilton provided proof that he repaid a $100,000 check from PG&E more than three years after he received it. Hamilton now says he was confused about the July 2001 check at the time he was deposed in August 2002. A 2001 letter he provided from PG&E that came with the check says it was prompted by the company's Chapter 11 reorganization and was meant as "security for additional work you may be asked to perform on this matter." The letter says that Hamilton could keep the full amount of the check until his final invoice, but he was expected to repay the $100,000 when his work was done.

Ouster of scientist from EPA panel shows industry clout

Maine,United States — 2013-04-01T14:20:29-04:00

In 2007, when Deborah Rice was appointed chair of an Environmental Protection Agency panel assessing the safety levels of flame retardants, she arrived as a respected Maine toxicologist with no ties to industry.

Yet the EPA removed Rice from the panel after an intense push by the American Chemistry Council (ACC), an industry lobbying group that accused her of bias. Her supposed conflict of interest? She had publicly raised questions about the safety of a flame retardant under EPA review.

Rice’s travails through the EPA’s Integrated Risk Information System, or IRIS, program reveal the flip side of industry’s sway. Not only does the ACC back many scientists named to IRIS panels, it also has the power to help remove ones it doesn’t favor.

The ruckus over the Maine scientist surfaced six years ago, but its lesson echoes today.

To Rice, her removal points up an irony borne out by a Center for Public Integrity investigation: Scientists with deep ties to industry are allowed to continue on IRIS panels. But she — with no financial link to industry — was booted.

“It wasn’t like I was a consultant, saying this stuff is really bad because someone is paying me to do it. I was the toxicologist working for the state of Maine asked by my department to do these reviews,” she said. “That was the basis on which they said I was in conflict.”

Another irony: Rice’s assessment was on target. Two years later, the EPA moved to cease production of decaBDE, a chemical it views as a possible carcinogen. In Maine, Rice’s research had supported a state ban on the chemical.

Rice was with the Maine Center for Disease Control and Prevention when she was appointed to the EPA panel convened to study the safety of brominated flame retardants used in products ranging from building materials to electronics and plastics. The panel was tasked to assess the safe reference doses of four forms of polybrominated diphenyl ethers (PBDEs) — including decaBDE, which Rice had studied for several years in Maine.

A former EPA toxicologist, Rice had been honored by the agency in 2004 for outstanding scientific work.

Her undoing came after she made public comments about a compound that was under EPA review.

Before her appointment to the IRIS panel, Rice, like other members, was asked whether she had taken public positions on the chemicals being studied. She answered “No” — but reported that in 2004 and 2005, as a toxicologist for the Maine CDC, she had written a review of the health effects of PBDEs.

With the IRIS panel due to convene Feb. 22, 2007, members were asked on Feb. 16 if any of their information had changed. “No changes,” Rice reported.

A day earlier in Maine, Rice had testified before the Legislature supporting a ban of decaBDE. “Deborah Rice with the Maine CDC’s Environmental and Occupational Health Program told lawmakers there is no question in her mind that deca should be eliminated because it is a persistent toxin that accumulates in the food chain,” the Bangor Daily News reported.

The ACC seized on those public statements and, in May 2007, dispatched a 10-page letter to the EPA urging that she be stricken from the panel. The chemistry council cited “certain information that has come to light that could suggest the potential for bias exists on the part of the Peer Review Chairperson.”

The ACC cited her comments in Maine and in articles she had written. “Thus, EPA staff had to know or should have known that the Chairperson has been a fervent advocate of banning deca-BDE — the very sort of policy predisposition that has no place in an independent, objective peer review,” wrote an ACC vice president.

Rice’s inclusion on the panel, the ACC said, “ultimately calls into question the overall integrity of the entire IRIS database.”

An EPA official met with the ACC that June. In the end, the agency sided with industry, concluding that Rice’s statements created a “perception of bias.” Reviewers found, however, that her comments did not influence others — “because her comments were echoed by the other panelists.”

In August 2007, the EPA deleted Rice’s comments from its website. A day later, an IRIS official called Rice to tell her the news.

The EPA site today says: “The final report includes only four of the five reviewers’ comments. One reviewer’s comments were excluded from the report and were not considered by EPA due to the perception of a potential conflict of interest.”

Rice had already completed her IRIS service when the EPA took its action. She said she was simply reporting her findings as a toxicologist and had no conflict. “All of a sudden my comments disappeared as if I had never been part of this panel,” she said.

Rice wonders whether industry targeted her as part of a larger plan to discredit attempts to ban deca. At the time, several states were raising concerns over the retardant’s safety. The EPA itself had raised concerns — ones so significant that in late 2009 the agency and several chemical companies agreed to phase out its production.

“I think the motivation just has been to discredit me personally,” Rice surmised. “To say, ‘She’s biased, she has a conflict, she’s discredited. These other states shouldn’t pay attention to what Maine has done.’ And it seemed to me they saw a good opportunity to do this.”

The ACC said it sought Rice’s removal to ensure the peer review was independent.

Her ouster triggered a dustup. Groups ranging from the Environmental Working Group to the Center for Science in the Public Interest chastised the EPA for removing Rice while, in other cases, keeping panelists with ties to industry. “The actions taken by EPA against Dr. Rice call into question the credibility of EPA management,” the groups wrote in 2008, urging the EPA to reinstate Rice as panel chair. “When it allows itself to serve the interests of the polluting industries that it is charged with regulating, it has perverted its mission.”

Rep. John Dingell, D-Mich., then-chairman of the Energy and Commerce Committee, pressed the chemistry council to explain why panelists with industry ties “have not been targeted by the ACC as also having conflicts of interest that would disqualify them from serving on EPA panels.”

The EPA’s Office of Inspector General investigated, and found no wrongdoing in the agency’s actions. “We conclude that EPA did not violate existing federal law, regulations, guidance or other relevant requirements in its actions,” an IG official wrote in January 2009.

Still, the removal of Rice shone a light on the system — for a time. The EPA “kind of promised to clean things up,” said Rice, who recently retired. “Once the spotlight shifts to something else, it’s business as usual.”

Texas tries to crack down on dental chains that put profits ahead of patients

Texas,United States — 2013-01-08T06:53:37-05:00

A leading Republican in the Texas legislature, who says she’s outraged by allegations that corporate dental chains put profits ahead of patients, has introduced a bill that would allow the state to regulate chains and forbid them from forcing dentists to meet revenue quotas.

A joint investigation by the Center for Public Integrity and PBS Frontline last summer found that two of the largest dental chains owned by private-equity firms, Aspen Dental Management and Kool Smiles, put pressure on its dentists to meet production goals, prompting complaints of overbilling and unnecessary treatments.

Both companies deny this. And a coalition of dental chains in Texas contends that their dentists have total control over patient care. But the chief sponsor of the bill remains skeptical.

“Several reports, including the Frontline program, have uncovered outrageous activities involving the illegal enticement of patients, especially among our Medicaid providers and often involving dental service organizations,” said Republican Sen. Jane Nelson, who chairs the Senate’s Health & Human Services committee.

Nelson did not name a specific chain. Aspen Dental does not accept Medicaid and has no offices in Texas. But Kool Smiles has clinics throughout Texas, and public records show that the state Attorney General has been investigating Kool Smiles for Medicaid fraud.

Texas has been embroiled in a Medicaid fraud scandal for the past couple of years. The initial focus was on overbilling Medicaid for unnecessary braces on children. But the scandal has since widened. State authorities said last October that beyond braces, they’ve identified 89 dental providers they suspect of overbilling Medicaid by $154 million.

The state hasn’t identified those providers, but a spokeswoman for the state Health and Human Services Commission said that because chains bill Medicaid the most, they were more likely to be scrutinized.

Most states outlaw anyone but a dentist from owning a dental clinic. Corporate dental chains are often owned by private-equity firms, but they contend that dentists own the actual practice. The chains say they merely provide those owner dentists services under contract.

But in many cases, the chains open the clinics, own the equipment, hire the dentists, employ the staff, and control the business strategy, which might include specializing in dentures or Medicaid patients. And our investigation found that Aspen Dental and Kool Smiles set revenue targets for each clinic.

The push to boost corporate profits has led to allegations that dentists are pressured to bill more than they might otherwise. Regulators in Georgia, Connecticut and Massachusetts concluded that dentists at Kool Smiles were routinely doing unnecessary procedures, including using more expensive stainless steel crowns on cavities when a simple filling would do.

The executive director of the Texas dental board, Glenn Parker, wrote legislators last October that he had no power to monitor chains to assure that dentists were free to treat patients as they saw fit.

“The dental board and staff are aware of the many media stories concerning the allegations of Medicaid fraud and patient abuse,” Parker wrote. “We are appalled by stories indicating that some dentists have over-treated young patients by placing unnecessary crowns, fillings or braces on those children.”

Nelson’s bill would require dental chains to register with the Texas State Board of Dental Examiners and forbid them from influencing treatments or setting quotas for a particular dental procedure.

The Texas Coalition of Dental Support Organizations, recently formed by a group of dental chains, opposes new regulation, saying laws on the books are already adequate.

“It is a felony to practice dentistry without a license, including by influencing, controlling or interfering with a dentist’s professional judgment,” the group says on its Web site. “The Attorney General is specifically empowered to prosecute violators of the Texas dental statutes and bring the full force of law down on anyone who would endanger patient safety by attempting to interfere with dentists’ clinical judgment or by practicing dentistry without a license.”

But without some way to track dental chain’s behavior, the Attorney General has no way of knowing whether they may be interfering in patient care, said Dr. Richard Black, an El Paso orthodontist who handles legislative matters for the Texas Dental Association. The state dental association supports the bill.

“There’s nothing sinister about this. We’re not interested in punishing anybody,” he said. “If they feel that they are doing everything exactly right then I don’t think they should feel at all put out by registering and being part of our state system.”

Payday lenders agree to stop 'deceptive and illegal' practices

2013-01-04T15:39:47-05:00

Controversial lenders that claim to be owned by Indian tribes and offer payday loans over the Internet have agreed to stop practices that federal authorities say deceive borrowers and violate federal laws.

The agreement, filed in federal court, could save borrowers hundreds of dollars on each payday loan.

The Federal Trade Commission last year sued an Overland Park, Kan., company, AMG Services, to recover millions of dollars in revenues, alleging that borrowers were illegally deceived. The business was founded and is still managed by Scott Tucker, best known as an endurance race-car driver who recently won the Baltimore Grand Prix.

The Center for Public Integrity first exposed Tucker’s business practices in an investigation done with CBS News.

The case awaits trial. But the FTC argued that AMG Services was continuing to mislead thousands of new borrowers. Tucker and the representatives from the Indian tribes last month agreed to change the practices that the FTC said were illegal.

Borrowers previously had to give the lenders direct access to their bank accounts and have payments automatically withdraw from their checking account. But instead of a single payoff, the lenders would withdraw interest-only payments for months.

By drawing out the loan payments out, a $300 loan could end up costing the borrower nearly $1,000. The FTC said this was not properly disclosed under the Truth-in-Lending Act.

With the agreement filed in a federal court in Nevada, the lenders will no longer require access to a borrower’s bank account and the loans will be paid off in one payment. The lenders also agreed not to tell borrowers that they could go to jail or be sued if they didn’t pay the loan back.

Authorities in several states had pursued AMG Services, accusing the company of violating state payday lending laws. Seventeen states restrict or forbid payday loans.

Nearly all states require payday lenders to register. But AMG Services said it was owned by Indian tribes and therefore had tribal sovereign immunity. Those tribes are the Miami and Modoc of Oklahoma and the Santee Sioux of Nebraska.

The attorney general of Colorado spent years battling the tribes in court, showing that they receive only 1 percent of the revenue from the business. Bank records show that much the rest of the money is used to bankroll Tucker’s personal expenses, including millions spent each year on his racing team, Level 5 Motorsports.

The tribes argue that the FTC cannot sue them either, an issue that will be decided in federal court. Other issues yet to be decided are whether the lenders are violating federal law and if so, how much money they would have to pay back.

The lenders use a variety of brand names, including UnitedCashLoans, US FastCash, 500Fastcash, OneClickCash and Ameriloan.

More on Fred Humphries, FBI friend of Jill Kelley

2012-11-15T13:35:04-05:00

Fred Humphries does not fit the stereotype of an FBI agent as cool and unemotional. In person, the man who helped initiate the investigation of CIA Director David Petraeus comes across as a passionate and empathetic person.

Until this week, Humphries was best known as the FBI agent who gleaned critical intelligence from an al-Qaida trained bomber in months of interrogations before the World Trade Center attack. Both a federal prosecutor and defense lawyer praised Humphries for the rapport he developed with Ahmed Ressam, the man convicted of a plot to detonate a bomb in the Los Angeles International Airport.

Humphries interrogations are credited with saving lives, most notably in helping authorities defuse the shoe bomb smuggled onto a commercial jet by Richard Reid. But Humphries raised a few eyebrows when he was called by defense lawyers to testify at sentencing that Ressam provided useful information.

Humphries sat down with a reporter from the Center for Public Integrity last year to talk about his personal beliefs opposing the CIA’s enhanced interrogation techniques employed after 9/11. Humphries described torture as both immoral and ineffective.

In the interview, Humphries said brutal techniques only lead to bad information. While he stressed that he does not condone Ressam’s actions, he said the key to getting cooperation was to try to put himself in Ressam’s shoes.

“As an agent, it’s not my position to judge,” he said. “I’m just there to find facts.”

Humphries’s empathy may have worked against him in the Petraeus investigation. Humphries and his wife became friends with Jill Kelley, a socialite who along with her husband hosted events for top military brass in Tampa. Kelley went to Humphries last May when she received suspicious anonymous emails.

The New York Times reports that the emails raised concerns within the FBI that someone might be stalking senior US officials.

Initial stories reported that Humphries had previously sent a shirtless photo to Kelley. But the Seattle Times reports today that Humphries sent the same photo as a joke to dozens of friends in 2010, including a Seattle Times reporter and Humphries’s former boss at the FBI. The Seattle Times reported that the snapshot shows Humphries, muscular and bare-chested, between two equally buff target dummies on a shooting range.

Humphries also sent friends an email after attending a party with Petraeus, in which he described him and another general as “great leaders,” the Seattle Times reported.

It’s not clear if Humphries realized that the investigation might lead to Petraeus’s resignation or raise questions about numerous flirtatious emails between Kelley and Gen. John Allen, top commander in Afghanistan. Other agents in Tampa reportedly kept Humphries out of the investigation because of his intense interest in it. Left out of the loop, Humphries reportedly feared that the case was being blocked politically. So late last month he went to Congressman Dave Reichert, R-Wa., a former sheriff in Seattle where Humphries had been stationed. News that Humphries went to members of Congress got back to the FBI director.

Within days, the FBI briefed James Clapper, Director of National Intelligence, about its probe. He persuaded Petraeus to resign.

Aspen Dental faces class action suit

Aspen Dental Management, Inc. — 2012-10-19T17:07:50-04:00

A class-action lawsuit accuses Aspen Dental, one of the nation’s largest corporate-dental chains, of illegally owning dental practices and of deceiving patients.

A joint report by the Center for Public Integrity and PBS FRONTLINE titled “Dollars and Dentists” reported in June that Aspen Dental’s practice of serving patients who cannot afford a dentist has led to complaints of patients being locked into debt as well as being overcharged and given unnecessary treatments.

The lawsuit brought by 11 patients alleges that Aspen Dental owns and controls its 358 dental clinics in violation of laws in 22 states which allow only dentists to own a dental practice. The lawsuit was filed yesterday in federal court in Aspen Dental’s home state of New York.

Aspen Dental said Friday that “the accusations that were made in yesterday’s filing are entirely without merit.” The company is owned by a private-equity firm, Leonard Green & Partners, and markets to patients who often cannot afford to go to a dentist.

The company says that it also provides support services to dental offices owned by local dentists.

“The dentists and staff at Aspen Dental offices around the U.S. provide access to high quality, affordable dental care for millions of patients,” the Syracuse-based company said. “Their singular commitment is to do what’s right for their patients.”

However, attorneys for the patients, Brian Cohen and Jeffrey Norton, say in the lawsuit that Aspen Dental trains the dentists and sets production goals for them, accusing the company of illegally practicing medicine.

Evidence of overtreatment at dental clinics serving poor children

2012-07-02T11:14:05-04:00

Sen. Charles Grassley, R-Iowa, says that his investigators have found evidence of abuses by corporate dental chains treating children on Medicaid.

For months now, Grassley’s staff has been asking questions of three dental chains serving poor children on Medicaid. Each is owned by a private-equity firm. The chains are Kool Smiles, Small Smiles and ReachOut HealthCare America.

“We’re finding that these dental practices, under pressure from owners who are not licensed dentists, have been providing services with the highest Medicaid reimbursement levels more often than less expensive, arguably more appropriate services,” Grassley said. “There are legitimate concerns that children are receiving unnecessary care, sometimes in a traumatic way, and taxpayers are paying for it.”

Earlier this week, a joint investigation by the Center for Public Integrity and FRONTLINE, revealed that the Atlanta-based chain Kool Smiles’s business model of serving kids on Medicaid has led to complaints that it over-treats children. The company has been accused by regulators in Georgia and Connecticut of overusing expensive stainless-steel crowns to treat small cavities.

Kool Smiles vigorously denies this, saying that it offers quality care to children in dire need. It is the largest Medicaid dental chain with 129 offices in 15 states and the District of Columbia.

Grassley said, “You have dentists under pressure to perform more services than may be necessary — giving a child a crown instead of a filling, for example — because of a bonus payment structure that creates the wrong incentives.”

As reported by CPI and FRONTLINE, one of Kool Smiles most controversial practices is its dentists’ heavy use of stainless-steel crowns to restore decayed baby teeth. Crowns are more profitable than fillings for dentists, because they can charge more for them. Kool Smiles provided analysis intended to show that it doesn’t overbill Medicaid but offers services at a lower cost than other dental providers.

Grassley said the problem was rooted in the structure of these chains, saying that it claims that dentists own the practices but in reality they do not have control.

“These “owner dentists” are effectively ghost owners who maintain none of the traditional aspects of ownership of their operations, allowing the corporate investors to have control over clinical operations,” Grassley said.

The senator is also looking at Aspen Dental Management, another corporate dental chain owned by private-equity firms. Aspen Dental does not accept Medicaid, but Grassley said there are concerns that “the company promotes unnecessary treatment plans with exorbitantly expensive credit arrangements.”

CPI and FRONTLINE also investigated Aspen Dental and found that its business model of serving patients who cannot afford a dentist had led to complaints of overtreatment and loading patients who cannot afford it with debt.

Aspen Dental denies this. It says it offers services to people that other dentists ignore.

Senator Grassley said he expects to issue a staff report on his findings on companies that serve children on Medicaid. His investigation in Aspen Dental is on-going.

The business behind dental treatment for America’s poorest kids

2013-01-24T11:20:05-05:00

Nearly half of the nation's children were on Medicaid or similar government assistance last year. Yet even with this insurance, families in poverty often struggle to find a dentist for their kids, forcing them to use emergency rooms to treat excruciating toothaches.

To solve that problem — and to settle a lawsuit — the state of Connecticut dramatically increased the fees it paid dentists through Medicaid four years ago. A flurry of private dentists signed up and soon, corporate dental chains specializing in Medicaid began opening offices around the state.

One of them was Kool Smiles. The Atlanta-based chain is the largest Medicaid dental provider in the country, serving roughly 2 million children with 129 offices in 15 states and the District of Columbia.

Within months, the state's Medicaid dental director said she became alarmed when she saw a disproportionate spike in kids getting stainless-steel crowns to treat cavities coming from a number of dental offices. The state pays at least $230 for these shiny crowns, compared to as little as $100 for a filling. But their use is controversial to treat small cavities.

The state started requiring dentists to get prior approval for each crown. That’s when the state identified problems at Kool Smiles.

"The X-rays didn't show a need for these kinds of services," said Donna Balaski, head of the state Medicaid dental program. "What we tended to see was that there was a small cavity and they wanted to put a crown on it."

They also started reviewing Kool Smiles’s X-rays taken after the treatments and found problems that Balaski called “atrocious:” crowns that didn't fit, decay left untreated under a crown and nerves left exposed.

The state showed the X-rays to Kool Smiles at a meeting in August 2010 but Balaski said the company didn't seem to take the criticisms seriously.

As the weeks went by, the company failed to come up with a plan to deal with all the children with questionable care, according to Balaski. So the state's Medicaid commissioner wrote a letter, telling Kool Smiles that some of the cases the state had seen were "malpractice." Finally, the company started to respond, Balaski said.

Today, she says, the chain is still under observation, but she's much happier with the work it's doing in Connecticut. Kool Smiles said it was able to correct the problems and has used the lessons learned there to make improvements at offices nationwide.

Yet the kind of problems discovered in Connecticut have shadowed Kool Smiles elsewhere. A joint investigation by the Center for Public Integrity and FRONTLINE found that the same business model that makes Kool Smiles profitable as a dentist of last resort has also led to complaints that they provide unnecessary treatment for children in need.

Medicaid pays an average of 30 percent less than what typical dentists charge, the company says. So Kool Smiles acknowledges that it has to be more efficient than most dental offices and has developed a computerized system to track its work. Several former employees said the chain is highly focused on production. It offers bonuses to dentists who bill beyond a certain amount and in some circumstances will fire dentists who fail to meet production standards, according to internal and court documents as well as former employees.

State authorities in Massachusetts and Georgia, Kool Smiles's home state, have reported documented cases of unnecessary procedures at Kool Smiles in past years. Medicaid authorities in Texas say they are currently conducting inquiries into Kool Smiles and other dental practices for possible unnecessary treatments. And the Senate is doing its own investigation of Kool Smiles and other dental chains for potential Medicaid waste, fraud or abuse.

Kool Smiles vigorously disputes criticism of its practices and business model. The company points out that it fills a critical need largely ignored by private dentists. In markets it serves, it says it can track the reduction of dental ailments in its patients. Last year, Kool Smiles says it provided almost as much free care as it made in profits.

But Kool Smiles is not a charity. It's run by a company owned by the private-equity firm Friedman Fleischer & Lowe of San Francisco, a firm whose investments exceed $2.5 billion in companies including the fast-food chain Church's Chicken and the payday lender Speedy Cash.

Kool Smiles denies that it exerts any influence on dentists to boost revenues and says it offers quality dental care.

“While nearly all health delivery models can be critiqued, we believe that our patients can speak for themselves — almost 80% of our patients on a daily basis are ones that come back because of the care that we’ve delivered,” company spokesman Geoffrey Freeman said. “We stand firmly by our dentists, their integrity and the quality of the care they offer to thousands of children every day.”

Many more crowns

One of Kool Smiles’ most controversial practices is its dentists’ heavy use of stainless-steel crowns to restore decayed baby teeth. Crowns can be the best treatment if much of a baby tooth has been eaten away, because crowns are more durable than large fillings. Still, the tooth’s natural enamel is the ideal surface and a basic ethic of dentistry is to save as much tooth as possible.

Parents and kids don’t like the look of the shiny crowns, and dentists acknowledge they’re used less often on children from families that can afford dental care. Yet crowns are common on Medicaid patients. Guidelines from the American Association of Pediatric Dentists say that crowns are appropriate for children with large or extensive cavities, especially if they aren’t likely to take care of their teeth.

Crowns are more profitable than fillings for dentists, because they can charge more for them. While adult crowns are custom made to last a lifetime, crowns for baby teeth come in standard sizes and cost the dentist no more than $8 each. It’s not clear why Medicaid pays more for stainless-steel crowns, since dentists agree that they’re easier and quicker to do than fillings.

Kool Smiles does far more crowns than average on children age 8 and under on Medicaid, according to an analysis of 2010 Medicaid data in two states done by CPI and FRONTLINE. In Texas, a child under the age of 9 at Kool Smiles has nearly a 50-50 chance of getting a crown as a restoration to treat problems like cavities, our analysis found. That compares to a one in three chance on average at other providers. And in Virginia, a child 8 or under on Medicaid going to Kool Smiles is twice as likely on average to get crowns than at other dental offices.

In response, Kool Smiles supplied its own analysis using state Medicaid data and said in general it found that their offices perform fewer procedures per patient, charge less per patient and have lower X-ray costs per patient on average. In Texas and Virginia, it said its analysis shows that it does fewer crowns per patient. But it did not address whether a young child going to Kool Smiles as opposed to any other dentist accepting Medicaid in Texas or Virginia is more likely to get a crown.

Take the case of four-year-old Jacey Regan. Her father, Robert Regan, who works for the Navy on an aircraft carrier, took his daughter to a Kool Smiles last July in Newport News, Va. He was surprised when the dentist diagnosed her with seven cavities, five needing crowns.

The young curly-haired girl is mildly autistic, so she can have trouble adjusting to unfamiliar situations. She got two fillings at one visit but rebelled on a second visit after what the family said was a long wait.

Unhappy with Kool Smiles’ general dentists, Regan took Jacey to specialist in children’s dentistry. Regan expected to be told that Jacey would need crowns. But the pediatric dentist said there was no need to do that.

Jacey had four tiny “lesions” on her teeth and the common practice is to watch such spots to see if they get any worse, according to the head of a pediatric dental program at a major university who examined Regan’s X-rays at CPI and FRONTLINE's request.

Robert Regan said it never occurred to him that his daughter might not need stainless-steel crowns. “I trusted the dentist,” he said. Kool Smiles diagnosed Jacey as a high risk patient for cavities and said under those circumstances, crowns were appropriate treatment.

State Medicaid officials in Georgia have twice done audits, most recently in 2009, finding that Kool Smiles was doing what they called unnecessary treatments.

Two Medicaid networks in Georgia kicked the chain out of their programs in 2007. WellCare of Georgia later told parents in a press release that kids who went to Kool Smiles were three times more likely to be physically restrained and five times more likely to get stainless steel crowns when compared to other dentists. WellCare reported that 44 percent of children treated at Kool Smiles got crowns.

The company said it did nothing wrong, and accused WellCare at the time of trying to boost its own profits by cutting back on dental care.

At the same time in 2007, the Georgia Department of Community Health reviewed 6,600 patient files at Kool Smiles and found 427 children who got dental care they didn’t need and another 219 cases where the work didn’t meet basic quality standards. In their notes, reviewers said they saw cases where Kool Smiles put crowns even on small cavities.

In a 2009 audit, the findings were even worse. Dentists hired by the state found 1,024 quality problems in only 248 patient files. That included 324 cases of unnecessary treatments. As a result, Kool Smiles paid back more than $40,000 to the state Medicaid program on billings the state said were unjustified.

Kool Smiles describes these findings as “unsubstantiated” and blames them on documentation issues. It also says that the state focused its 2009 audit on only nine dentists and only on cases that were complicated. The company said public data shows that it is a "quality, conservative provider."

In 2009, the Massachusetts state auditor reported that three Kool Smiles offices had overbilled Medicaid by $1.2 million, primarily by taking X-rays that weren’t needed. Auditor Joe DeNucci, talking about those Kool Smiles offices and seven other dental providers, said, “There appears to be a culture of using the system to maximize benefits to the providers, which leads to reduced services for people in need and the waste of taxpayer funds.”

Kool Smiles calls this statement “unsubstantiated” and says it follows industry guidelines for X-rays. Kool Smiles said it takes X-rays only in the best interest of the children.

Republican Sen. Charles Grassley of Iowa has had his staff conduct an investigation of Kool Smiles as well as a handful of other corporate dental chains since late last year for possible waste, fraud and abuse. Grassley said he was concerned that private-equity firms might exert influence on dentists to focus more on profits than on the patients.

“I’m finding in this investigation that there are people that know nothing about dentistry are saying you got to see so many people, you got to do so much work for each one, and in a sense, gaming the system,” Grassley said in an interview.

“We have found, at least initially, some things that we think are very wrong and need to be changed.”

The best of intentions

Several former employees said Kool Smiles started off with the best intentions. Doug Brown, a former paramedic who later headed a private ambulance service in Tuscon, Ariz., decided to start Kool Smiles after working with his brother-in-law, a dentist treating Medicaid patients. Brown said he saw an opportunity to have a viable business and to help children in need.

In 2002, Brown recruited two young dentists in Denver and opened Kool Smiles’ first office in Decatur, Ga., a small community outside Atlanta.

“The demand for service was unbelievable,” said Brown. “These kids had nowhere to go for years and years.”

The original plan was to open perhaps 10 to 15 offices. But Brown says he got an unexpected call from Friedman Fleischer & Lowe in 2004. The private-equity firm had considered buying another Medicaid dental chain, but decided to build its own chain. Brown said getting picked was a million-to-one shot. Though the initial investment was small by private-equity standards, in 2010 FFL tried to sell the company for $700 million but a deal fell through.

The company says it addresses the low reimbursement rate by freeing dentists from worrying about administrative tasks. Kool Smiles has a company called NCDR LLC that hires the dentists, finds new locations, owns the offices and equipment and manages the employees.

“It's what every professional practice aims to achieve, which is take the people who are capable of actually generating revenue and put them in a position to generate revenue,” said company spokesman Freeman.

NCDR is known at Kool Smiles for meticulously tracking data. The company distributes an “Office Scorecard” each day, showing each office a monthly and even daily ranking of how well they met revenue targets. A scorecard from September 2009 showed that for the month 34 offices hit their revenue targets while 24 did not.

“We always had to account for failing short of our goals,” said Christina Bowne, who managed an office in Portsmouth, Va.

On the other hand, she said office managers got bonuses when they hit their revenue targets.

“When you’re focused on the numbers, you remove yourself from the feeling of doing the right thing,” Bowne said.

Bowne said the system rewards dentists who bill as much as possible. Bowne herself was eventually fired days after reporting one dentist to the state dental board for what she considered improper treatments. Bowne's now suing Kool Smiles for wrongful termination. The company’s human resources senior vice president testified in a deposition that she was fired for falsifying business records and tensions with one or more of the dentists.

Megan Calimbas said she faced the same pressures as the office manager of a new clinic in Bryan, Texas in 2008. “We were just completely swamped,” Calimbas recalls. “While I was there I was working 60 to 70 hours a week.”

Although her office was a star performer on the "Office Scorecard," she says she was criticized for paying staff too much overtime. As a result, Calimbas said she was asked to leave after only five months on the job.

In hindsight, Calimbas thinks most of the dentists and staff at Kool Smiles want to do what’s best. But she thinks the mathematical precision of all those goals was unrealistic and doesn't account for the individual needs of patients.

While Kool Smiles acknowledges that offices have revenue targets, it denies that its dentists do. When asked if dentists have revenue goals, regional dentist Dr. Polly Buckey, speaking on behalf of Kool Smiles, said, “For our dentists, there are not. For our dentists, there’s not a number.”

However, contracts with dentists provided by Kool Smiles show that rank-and-file dentists can get paid bonuses based on the revenue they bill. The company provided a recent bonus plan showing that dentists are paid a base salary, typically $120,000 a year, or 25 percent of their billings, whichever is greater.

Kool Smiles acknowledged that their dentists get production based bonuses, but only after meeting quality standards. And they insisted that bonuses are not the same as targets. In a statement, the company said, “Dentists do not receive revenue, patient or procedure targets or scorecards.”

The Center for Public Integrity and FRONTLINE obtained several confidential internal documents, including one that ranks each dentist in the chain based on how much they bill in an average day. Another document lists a variety of metrics for dentists, including how many patients are seen a day, how many crowns dentists do and even how many areas of a child’s mouth they put crowns or fillings on in a single appointment.

In response to questions about these documents, Kool Smiles said dentists are able to see how they rank if they chose. It says the report on patients per day and other metrics is used to assure quality. But Kool Smiles says no one from the business side ever discusses these reports with the dentists.

The company’s chief counsel and senior vice president of human resources, David King, recently testified in a lawsuit that dentists have production standards. King testified that a doctor in Portsmouth, Va., was fired “not meeting our performance standards, basically production standards … She basically wasn’t meeting our targets around seeing a number of patients per day, quadrants of dentistry per day, those types of measures.”

Dr. Ashley Nichols, the regional dental director of Virginia, testified that the dentist was fired for "not meeting performance standards in terms of productivity."

Dentists who used to work at Kool Smiles said they were under pressure to meet revenue goals. One former Kool Smiles dentist, who asked not to be identified for fear of being sued, was asked how she met the targets if the children that day didn’t have a lot of dental problems.

“Oh my God, it’s a really hard thing to do. You have to do what’s best for the kid ... If you get in trouble, you get in trouble for not producing enough. And believe me, I got in trouble.”

Another former Kool Smiles dentist alleged in a federal lawsuit that he saw children being misdiagnosed and given treatments they didn’t need as a result of the financial incentives.

“Kool Smiles’ company structure rewards staff who performs multiple treatments on their patients — whether necessary or not,” alleged Dr. Baljot Bains, who was fired from an office in Bryan, Texas, after an angry confrontation with another dentist he had reported for allegedly misdiagnosing patients.

Bains wouldn’t talk publicly about his allegations, but in the lawsuit he said that “there was constant talk about production.” Dentists said they’d be told they needed to boost production, and that they would decide to use stainless steel crowns on small cavities as a way to increase revenue, Bains alleged. Kool Smiles denied the allegations in the lawsuit and the lawsuit was settled.

The financial incentive raises questions about treatment decisions at Kool Smiles for parents like Kari Reyes of Norfolk, Va. Reyes at first felt good about Kool Smiles. She trusted her daughter’s dentist there.

In February 2011, the dentist examined 3-year-old Marissa Mares and found eight cavities. She wrote up a plan for seven fillings and one crown. After fixing four teeth, the dentist asked Reyes to come back to take care of the four others.

But when Reyes showed up three days later, a different dentist examined Marissa. The new dentist rewrote the treatment plan, changing the fillings to crowns.

Reluctantly, Reyes agreed. The little girl slept through most of the treatment on laughing gas. But the new dentist couldn’t get one of the crowns to stay on. Reyes said the dentist kept pushing the crown hard against the gums, causing them to bleed. Suddenly, Marissa awoke with a jerk and start shrieking in a way that Reyes had never heard before.

“It was a very scary thing when she started screaming,” Reyes said. “It sounded like a painful scream.”

The dentist decided to have Marissa strapped down as the 3-year-old continued to scream and kick. Reyes couldn’t bear it and starting tearing up. “She was just stuck there crying, couldn’t move, couldn’t do anything. I couldn’t do anything to help her,” Reyes said. “It was really horrible.” Finally Reyes told the dentist, “Could you stop and numb her mouth?”

Reyes said the dentist didn’t respond. After asking again several more times, Reyes said, the dentist finally told her to be quiet. That enraged Reyes, who says she yelled at the dentist to stop and to get a different dentist. Reyes even followed the dentist out in the hallway, yelling.

Another dentist came in, numbed Marissa’s mouth and got the crown to stay on. There was still one tooth left to treat, but days later Kool Smiles told Reyes she couldn’t return. They now considered her a threat for her angry outburst. Reyes took her daughter to another dental office.

Dr. Robert Howell examined the tooth and said there was no cavity on it. It was just a stain that he polished off. In an interview, Howell said, “From my observation of the child’s mouth, she was very aggressively treated.”

The dentist at Kool Smiles, Trina Collins, defended her decision to put crowns on Marissa, saying that fillings were more likely to fall out. The chain said other dentists who have looked at Mares’ X-rays concur. Kool Smiles called the treatment “appropriate” and “in compliance with professional guidelines.”

Collins said the first dentist who planned to use fillings was young and inexperienced. And she said dentists can have different opinions on whether to use crowns or not, but that she had years of experience treating children.

A background check showed that Collins was thrown out of a pediatric residency program at Harlem Hospital in New York in 2009. The hospital leveled ten charges of misconduct against Collins, including falsifying a report and changing a treatment plan with no justification. In an interview, Collins denied that she did a residency at Harlem Hospital, but documents she filled out there give her current address in Virginia.

Reyes now questions whether her daughter needed all that work, especially whether she needed crowns.

“You know, they caused my daughter pain for their gain,” Reyes says. “It’s wrong to do that to a child.”

Corporate dental chains see big profits in adults who can't afford care

Aspen Dental Management, Inc. — 2013-01-24T10:52:16-05:00

Surviving on a meager $1,300 a month, 87-year-old Theresa Ferritto fretted about the cost when her dentist told her she needed two teeth pulled.

She figured an oral surgeon would be too expensive. So she decided to try out a dental chain that promoted steep discounts in its advertisements. She went to an Aspen Dental office just outside Cleveland.

Ferritto said Aspen Dental wouldn’t just pull the teeth but insisted on a complete exam. She was bewildered when they finally handed her a treatment plan four pages long. Total price: $7,835.

Ferritto could not afford it, but Aspen Dental signed her up for a special credit card, with monthly payments of $186 for five years. She blames herself for signing the papers.

“I made a big mistake going there,” she says. “I should have known better.”

After a day of cleanings and two fillings, Ferritto asked her son for help. He called Aspen Dental to complain but said he got nowhere. So they turned to the state Attorney General.

Aspen Dental took all charges off her credit card for treatments she hadn’t yet received. But said the $2,540 she was charged for two fillings and cleanings was appropriate.

Aspen Dental charged Ferritto $350 for an antibiotic put next to teeth the dentist was going to pull, a charge other dentists say makes no sense. There were four separate charges for an antibacterial rinse similar to Listerine for $129. There was even a $149 charge for an electric toothbrush that Ferritto didn’t even know she had, until she recently retrieved an Aspen Dental bag from her garage and found it inside.

Imagine how many groceries that would buy, she sighed.

When asked if Ferritto was taken advantage of, Aspen Dental chief executive Robert Fontana said, “I hope that the team was clear about what she needed and that that she completely understood what she was getting into. And hopefully, you know, she made the choices that she thought was right for her.”

Aspen Dental is a chain of nearly 350 offices in 22 states managed by a company owned by a private-equity firm. It is part of a fast-growing industry of corporate dental practices, many of which specialize in serving people who cannot afford to go to the dentist, a group many dentists ignore.

By marketing to people who haven’t seen a dentist in years, Aspen Dental often gives new patients treatment plans costing thousands of dollars. The Center for Public Integrity (CPI) and FRONTLINE spent months examining Aspen Dental and found that the same business model that makes Aspen Dental accessible to people short on cash can also lock people into debt and has led to complaints of patients being overcharged or given unnecessary treatments.

Former employees say Aspen Dental trained them in high-pressure sales. Corporate management scrutinizes the production of dentists and staff daily. And an Aspen Dental recruiting video says that dentists get paid bonuses as key production targets are met.

“You’ve got people who are not dentists, that are in management … they are breathing down the doctor’s back,” said Jenny Hayes, who worked as an office manager for Aspen Dental in the Chicago-area last year. “There are goals and if you are not hitting your goals, then you lose your job.”

Aspen Dental denies that its dentists have stronger financial incentives than other dentists or that its bonuses affect treatments. Fontana, founder and chief executive officer of Aspen Dental, based in East Syracuse, NY, said dentists won’t do unnecessary treatments because “it’s just not in their DNA.”

“I’m not even sure what corporate dentistry means, because we have no influence on the dentistry,” Fontana said.

He said Aspen Dental frees dentists to focus solely on patients, because the company handles back-office duties such as marketing, accounting and billing. In fact, dentists own and control all of the practices, says Fontana. All but four states forbid anyone who’s not a dentist from owning a practice on the assumption that dentists are trained and motivated to put patients ahead of profits.

But Sen. Charles Grassley, a Republican from Iowa, questions whether dentists at corporate-dental chains are free from corporate pressures to maximize profits. Grassley wouldn’t speak about Aspen Dental specifically, but he’s had investigators looking into the company and other private-equity-owned chains for months.

“Because when private equity firms get involved,” Grassley explained, “You got to understand that their motivation is to make money. And they are not dentists. And dentists ought to make the determination … of what is good for the teeth … Not some private equity manager in Wall Street.”

Aspen Dental says it serves people who otherwise wouldn’t go to a dentist. Forty percent of Americans have a family member who put off going to the dentist because they couldn’t pay for it, according to a survey by the W.K. Kellogg Foundation. Fontana says Aspen Dental looks for ways to make it easier for those people to walk into their offices.

Their offices are easy to spot at shopping centers, often near fast-food restaurants. Posters advertise a free exam and X-rays. Many of their new patients walk in the door without an appointment. Aspen Dental accepts most insurance and if the patient is still short on cash, they will sign you up on your first day for “no-interest” credit cards through GE Capital or Chase.

Aspen Dental specializes in dentures, which they make in each office. The consultation room has a tray of dentures to choose from, ranging from the basic no-frills model to the “precision hand-crafted” ComfiLytes, coming in 27 shades. Internet ads offer dentures on sale for $249. Its commercial tells stories of a man in pain from poor-fitting dentures and a woman too embarrassed to smile.

Aspen Dental insists that all new patients get a comprehensive examination. So even if someone just wants a routine cleaning or needs a broken tooth fixed, Aspen Dental presents a treatment plan for any problems that may crop up years later. Fontana says this approach is what’s best for patients, because neglected teeth and gums can lead to serious problems. Several former employees, however, describe the initial exam as a sales tactic to maximize revenue on each new patient.

“People would come into the office maybe with a toothache and come out with a treatment plan that maybe the dentist said we need to extract all your teeth,” said Jenny Hayes, the former office manager in Illinois. “They were made to stop in the manager’s office and sit down for an intense consultative selling process that they really didn’t bargain for when they walked in the door. I had people literally breaking down and crying in my office. And it happened quite regularly.”

The average treatment plan presented to new patients runs $4,450 at Aspen Dental’s top producing offices, according to an internal company document obtained by CPI and FRONTLINE. The company says the extensive treatment is a reflection of the patients they draw.

“A typical patient is probably 45 to 65 and struggling just to make ends meet,” said Fontana, Aspen’s CEO. “They’re taking this week’s paycheck to pay last month’s mortgage, making their car payment, trying to put their kids through school and unfortunately, dentistry can become discretionary.”

Donna Kelce of Des Moines, Iowa, fits the profile. At age 55, she hadn’t been to a dentist in 15 years. She didn’t have dental insurance and didn’t think she could afford it. Besides, her teeth never bothered her until a gap starting forming between two front teeth. Embarrassed, she finally went to an Aspen Dental office after seeing one of its commercials.

Kelce was X-rayed and sent to a consultation room, where a dental assistant handed her a treatment plan. Kelce’s gaze stopped on a particular word.

“I could feel the kind of blood run from my face, thinking, “Oh my God. Dentures,” Kelce said.

Kelce recalls the dentist saying she had no real option but to get dentures because she had lost too much bone for implants. She wasn’t sure how she could afford Aspen Dental’s $3,700 bill. But then the office manager signed her up for a “no-interest” credit card through Chase. Relieved, Kelce thought she was getting a bargain.

She came back in late November 2009 to have 13 teeth pulled. But she said the dentist pulled and pulled and couldn’t get all the teeth out, breaking one at the root. Kelce wondered if so much bone was gone, why the teeth weren’t coming out easily. After three hours, the dentist still had six teeth to pull but said she could do no more because she had already given Kelce the maximum dose of Novocain.

Aspen Dental sent Kelce to one of its former dentists who could see her that evening. Dr. Jessica Lawson looked at Kelce’s teeth and concluded that they didn’t all need to be pulled. But she finished the work so Kelce could wear her dentures. Kelce said Lawson suggested that Kelce report the incident to the Iowa Dental Board. Lawson herself wrote a letter to the board.

“Having worked at Aspen Dental myself for a short period of time, I am well aware of the type of care that can potentiate, especially if the doctor isn’t firm with the office manager and regional managers in providing the standard of care that he/she is use to, instead of producing the numbers that Aspen requests and expects,” Lawson wrote.

The dentist at Aspen Dental, did not return phone calls for comment. But she gave a different account of Kelce’s treatment in her notes. She said she suggested alternatives but that Kelce “insisted on dentures and full upper extractions even though (six upper teeth) can be saved.” She added that four of those teeth might not last forever.

Kelce, who is now suing for malpractice, said the dentist never told her any of her teeth could be saved.

“Who in their right mind would let them pull my teeth if they didn’t need to?” she asked.

Dr. Gerald Marlin, a Washington DC prosthodontist who specializes in replacing teeth, looked at Kelce’s X-rays at the request of CPI and FRONTLINE. He drew a red line along the bone and said Kelce had plenty of bone to save seven of her upper teeth.

Marlin came up with seven treatment options for Kelce, in most cases replacing her teeth with a bridge or partial denture. He said dentures should only be a last resort. They don’t adhere well and affect a person’s ability to speak and eat. Partial dentures are not only cheaper but they fit securely, anchored by the remaining teeth.

The dental board dropped the case and won’t discuss it, citing confidentiality laws. Coincidentally, that same month the dental board issued a press release, saying, “The Board has seen an increase in complaints in connection with corporate dental practices. The types of complaints include both continuity of care issues and issues related to the business aspects of the practice.”

Corporate dental chains are barely regulated in most states, especially if they don’t accept Medicaid patients. State dental boards typically don’t have any power over corporations.

Lili Reitz, executive director of the Ohio State Dental Board, said last year a quarter of her complaints — or 140 — were against dentists at corporate chains. Yet she has little authority to take action against the companies. Instead, her power comes from having control over the licenses of individual dentists.

It’s common for Reitz to get complaints that private dentists are trying to do unnecessary care, such as putting fillings on cavities that other dentists don’t see. Still, Reitz says the pressures on dentists at corporate dental practices seem more intense.

“I think quotas and how many patients need to be seen a day definitely have an adverse effect on the quality of care,” Reitz said. “What’s frustrating for us is to go dentist by dentist by dentist. By the time we get there, they’re not there anymore” because corporate chains have high turnover rates.

Reitz says dentists tend to stop doing needless treatments after leaving a corporate dental chain, so she considers the problem solved and takes no formal action.

State attorneys general can take action under consumer laws if a dental chain deceives patients. The Pennsylvania Attorney General sued Aspen Dental in 2010, alleging that Aspen Dental advertised “free” exams but still charges patients with insurance. The state also alleged that Aspen Dental failed to reveal that the “no-interest” credit cards it pushes have steep penalties — 29.9 percent interest on the entire amount of the original loan — if a patient misses payments. Aspen Dental settled, paying $175,000 in restitution without admitting wrongdoing.

Dental malpractice cases are relatively rare, attorneys say, because they are expensive to pursue and usually don’t offer big payouts.

Consumer sites on the Internet are full of complaints about Aspen Dental. Fontana acknowledges that the company counted 1,000 complaints posted from 2006 to 2010. But he said Aspen Dental treats 12,000 patients a day, so the number of complaints is relatively small. Aspen Dental has an employee who now responds to the complaints.

Two former dentists at Aspen Dental said Donna Kelce’s story is not surprising. Neither would allow their names to be used because they’d signed confidentiality agreements and feared being sued. But one admitted that he himself pulled teeth that he didn’t think needed to be pulled. It would happen when another Aspen dentist had written the treatment plan and said the patient had insisted on dentures.

He recently left Aspen Dental, saying, “I couldn’t do it anymore … They spend most of their time trying to talk people out of their teeth.”

Fontana dismissed complaints by former employees, saying all companies have disgruntled workers.

Aspen Dental is a pioneer among corporate dental chains. Fontana considered becoming a dentist when he graduated business school in 1991, but decided instead to apply his business knowledge from working in a group dental practice, imagining ways of tapping into the market of people who never go to a dentist.

In 1998, he founded Aspen Dental Management. After five years, the company had opened 50 offices and had drawn the interest of private-equity firms. Capital Resources Partners of Boston invested $18.7 million in Aspen Dental in 2004. The Los Angeles firm Leonard Green & Associates bought the company in 2010 for just under $550 million.

Fontana says private-equity firms want out of a business after about five years, and the key to a big payoff is growth. Aspen Dental opens a new office nearly every week, creating a drag on profits, according to a recent report by Moody’s. Last year, the company made more than $500 million in revenue but had a pretax profit of only $12 million.

The company meticulously tracks revenue targets for each office. Yet Fontana said those targets don’t apply to dentists.

“I think it’s important to keep in mind again, that the dentists don’t have these goals,” he said. “They just don’t have them. They don’t exist.”

But even an Aspen Dental video on the company’s Web site recruits dentists by saying, “Compensation for associate dentists includes an annual salary plus bonus opportunity that increases as key targets are met.”

The video even gives a glimpse of the revenue targets for an office in Springfield, Mass. A multicolored spreadsheet titled “My Practice Metrics” shows that “dentistry” billings for November 2009 were 243 percent above “budget.” The image shows there are also revenue targets for cleanings and dentures.

The scrutiny dentists are under at Aspen Dental is clear in a report that Fontana called the “game tape.” It’s a monthly performance measure sent to office managers. CPI and FRONTLINE obtained one of these confidential reports for an office in Owensboro, Ky. It shows that in February, the office had billed $270,000 so far this year, $35,000 above its target.

The document shows that Aspen Dental also scrutinizes the billings of its dentists. The lead dentist in Owensboro was billing an average of $5,206 a day, earning him praise from the regional director, who wrote “Showing great trends for this month.” But the tape also compared the dentist to top producing dentists, and in that regard, he fell nearly $1,000 short each day.

Heather Haynes, who managed an Aspen Dental office in Joliet, Illinois, said that office managers who didn’t hit their targets consistently were likely to be fired. She said that’s in fact what happened to her. Haynes said dentists and hygienists, the office’s revenue makers, faced the same pressures.

Aspen Dental invited CPI and FRONTLINE to a new office in Warsaw, Ind., to show how badly needed its services are. Warsaw, a town of about 13,500, has only six private dentists. Aspen Dental opened an office there after a dentist noticed how many people from Warsaw were driving an hour to Fort Wayne for dental appointments.

Ted Collins, a 47-year-old truck driver, walked into the office that day with an excruciating toothache.“I have to use ice packs at times to keep it frozen so I can get some sleep,” Collins said.

He hadn’t been to a dentist in ten years and came in because of the free X-rays. Two of his teeth were abscessed, an infection that can spread and in rare cases even become fatal. The office gave him a comprehensive exam and found he needed dentures.

Dr. Kurt Losier, the owner of the practice, wiggled several of Collins teeth and showed on the X-ray that his bone had receded dramatically. Losier suggested Collins get the dentures with the longest warranty, which are also the most expensive dentures. Collins couldn’t afford the treatment plan, which came to $7,000. So the office manager tried to sign him up for a credit card. He was rejected.

Patients at Aspen Dental are turned away every day because they cannot afford the treatment, Losier said. To avoid that, the office will trim the treatment plan down. But even that often doesn’t work.

Losier vowed no matter what, he would take care of Collins’ abscessed teeth. Ultimately Collins said a friend gave him the money for the dentures.

Haynes, the former office manager, said she lost sleep at night worried about whether the sales tactics Aspen Dental taught her were ethical. She said she trusted the dentists she worked with. But she was so skeptical of the expensive deep-cleanings sold to so many patients that she herself refused to get one after she was examined in her own office.

Lance Dykes, who managed an office in in Tennessee, said he felt like he was being forced to take advantage of people by selling them treatments he suspected they didn’t really need. He finally quit one day when he says he had to sell a $12,000 treatment plan to an elderly couple who seemed confused.

Dykes said the man looked him in the eye and asked if he had to decide right then. Dykes said no. Go home and think about it. This broke the rules taught in training for closing the deal, which he says, include getting the patient to commit before they walk out.

In December 2008, Sarah Keckler went to an Aspen Dental in Mechanicsburg, Penn., just to get her teeth cleaned. After a long wait, the dentist said the 20-year-old had three cavities and also needed to have her wisdom teeth pulled. She also said Keckler might have oral cancer.

Keckler, who now lives near Washington D.C., recalls the woman talking so loudly that it seemed the whole office could hear. “She was giving this massive disaster scenario. I didn’t believe a thing that she said.”

Keckler went to her dentist regularly, the last time just six months earlier. But a change in her insurance forced her to switch dentists. As she was wondering how she was going to get out of this, the office manager handed her an estimated bill for a little more than $600. Keckler said the manager encouraged her to sign and even to enroll for a special credit card to pay for it all up front.

Angered by what she considered a hard sell, Keckler got up and left and went back to her family dentist. He found no cavities, no need to pull her wisdom teeth and no oral cancer.

Aspen Dental reviewed Keckler’s files and says she was appropriately diagnosed and that other dentists would agree. However, in an interview, Aspen Dental’s Arwinder Judge, the vice president of clinical support, acknowledged that the surface cavities don’t show up in Keckler’s X-rays. The company is relying on the dentist’s notes to support its diagnosis.

Last February, Dr. David Schneider, a dentist in Chevy Chase, Md., examined Keckler and her X-rays at the request of CPI and FRONTLINE. He said there were no cavities, no need to pull her wisdom teeth and no signs of oral cancer.

IMPACT: Tribal payday lender sued by Federal Trade Commission

2012-04-02T17:30:30-04:00

The Federal Trade Commission today took up a case that had thwarted state authorities for years, accusing an Internet payday lender with ties to Indian tribes of illegally deceiving borrowers.

The agency is asking a federal judge in Nevada to order AMG Services of Overland Park., Kan., to stop the deceptive practices and pay back borrowers who its says got cheated.

“The defendants have deceived consumers about the cost of their loans and charged more than they said they would, said Malini Mithal, the FTC’s assistant director of financial practices. “The FTC is trying to stop this deception and get refunds for consumers.”

While the company has won arguments in state courts that it has tribal sovereign immunity, allowing it to make loans even in states that restrict or forbid payday loans, that protection doesn’t apply to the federal courts. Court records suggest the business has made more than $165 million, charging interest rates as high as 800 percent on small loans. Borrowers have complained in droves about the lender’s tactics. Law enforcement authorities have received more than 7,500 complaints about the business, the FTC says.

Among the defendants in the lawsuit is Scott Tucker, a professional race-car driver from Kansas City, Kan. Tucker became a millionaire from the payday-lending business he started more than a decade ago. When state investigators started digging into the company’s practices, Tucker came up with a plan to sell the business to three Indian tribes while continuing to run the company and to collect most of its profits, according to recent court records filed in Colorado.

The Center for Public Integrity and CBS News jointly investigated and exposed Tucker’s involvement in the tribal payday lending business in September.

Critics have dubbed this tactic “rent-a-tribe” and other lenders have copied the practice. Several states have tried to take action against the company without success. The business has even won major court challenges in the California Court of Appeals and the Colorado Supreme Court.

Colorado Attorney General John Suthers has been trying to stop Tucker and the tribes from lending in his state for seven years and uncovered evidence that the deal Tucker cut with the tribes allowed him to keep 99 percent of the revenue. But a Denver judge recently ruled that, despite this evidence, the state was unable to prove that the deal was a sham. As a result, the business continues to make unlicensed loans even in states where payday lending is restricted or illegal.

“Despite the hard work of state attorneys general, these defendants have been successful in evading prosecution so far,” Mithal said. “But the law that applies to the federal government is different than the law that applies to the states, so the FTC action should put an end to the defendants’ deceptive and unfair practice.

The FTC released exhibits of bank records that show that Tucker and his brother control the bank accounts of the lending business. From September 2008 to March 2011, AMG Services had deposits and withdrawals of more than $165 million. Money from the business was used to pay for Tucker’s $8 million vacation home in Aspen, Colo., flights on a private jet to races, and even plastic surgery, according to court documents. The FTC says Tucker’s racing team has received $40 million in sponsorship fees from the payday-lending business.

Besides Tucker, the FTC is also suing business leaders from the Miami and Modoc tribes of Oklahoma and the Santee Sioux tribe of Nebraska who claim to own and manage the business as well as the tribal companies involved. Among the other companies named in the lawsuit is Tucker’s racing team, Level 5 Motorsports, and even a limited partnership Tucker used to buy his home in Aspen.

Neither Tucker nor attorneys from the tribes responded to a request for comment.

The FTC accuses the company of deceiving borrowers about how much they’d have to pay back. On a typical $300 loan, borrowers were told they’d have to pay only $90 in interest. But the FTC alleges that the lender would automatically “renew” the loan every two weeks, so that the borrower would in reality have to pay $975 on the loan.

The FTC alleges the company also deceived borrowers who were late on payments by falsely threatening to sue them or even to have them arrested. And the lawsuit alleges that borrowers were required to sign over electronic access to their checking accounts, which under federal law cannot be a condition of a loan.

“This provision allows defendants to prey on vulnerable consumers by making automatic withdrawals from their bank accounts,” the lawsuit alleges.

The loans are often made through a separate lead generator called MoneyMutual.com, which uses former talk-show host Montel Williams to promote its loans, sources told The Center for Public Integrity. Neither MoneyMutual.com nor Williams were named in the lawsuit.

The loans are made under several brand names, including OneClickCash, UnitedCashLoans, USFastCash, Ameriloan and 500FastCash.

This is not the first case the FTC has brought against tribal payday lenders. The consumer-protection agency has also filed lawsuits against Payday Financial LLC of South Dakota for trying to garnish wages of its borrowers and threatening to sue them in the Cheyenne River Sioux tribal court. The FTC says the company has no authority to garnish wages or to file cases against nontribal members in a tribal court.

Online payday lenders are the fasting growing segment of the industry, accounting for more than $10 billion a year in loans. Only a fraction of that money goes to tribal affiliated lenders.

Angela Vanderhoof of Olympia, Wash., borrowed $400 from OneClickCash in October 2010, not realizing she would eventually pay $690 in interest on her loan or that she would be hit with as many as four overdraft charges on her checking account in a single day. The withdrawals left her nearly penniless, she said.

When she talked to the Center for Public Integrity last fall, she wondered if she would ever be able to get any of that money back. Today, she’s one of the borrowers listed in the FTC court documents.

“I think it’s great that somebody doing something,” she said. “I didn’t know if anybody would be able to do anything.”

Colo. judge issues new ruling in payday lending case against Indian tribes

2012-02-27T14:20:35-05:00

A judge in Denver now says he misunderstood key evidence when he ruled that two payday lenders operating on the Internet were beyond the reach of state regulators because they had been sold to Indian tribes.

Denver District Judge Morris Hoffman says it’s now clear from the evidence that the sales were initially shams to cloak the businesses with tribal sovereign immunity. Yet in his new ruling, the judge still blocks the Colorado Attorney General from investigating the tribal entities further for violating state lending laws.

This bizarre twist in the seven-year-old case seems to allow Indian tribes to sell their sovereign immunity to businesses wanting to violate state laws. Critics dubbed this practice as “rent-a-tribe.” And today, at least 30 online payday lenders claim ties to Indian tribes.

The Colorado Attorney General contends that Scott Tucker, a Leawood, Kan., millionaire and professional race-car driver, started the lending businesses but then crafted sham deals with the Miami Tribe of Oklahoma and the Santee Sioux Tribe of Nebraska to keep states from shutting down his lucrative operation.

Earlier this month, Hoffman said that the evidence made it clear that Tucker’s initial deal with the Indian tribes was legitimate. Yet Hoffman got key facts wrong in his first ruling.

Hoffman said in that ruling that the tribes got 99 percent of the revenue from the payday lending business. In fact, the agreements gave Tucker’s business 99 percent of the revenue. Records show the business affiliated with the Miami Tribe grosses as much as $20 million a month.

In a corrected ruling, Hoffman wrote, “Nothing is more telling as far as assessing true owners than to follow the money, and the fact that Tucker put up 100% of the capital and enjoyed 99% of the payday revenues makes it evident that Tucker, and not the tribal entities, continued to own these businesses.”

However, Tucker crafted a new ownership agreement with the tribes in September 2008. Tucker now claims to be an employee of AMG Services, a payday-lending company that the tribes say they own.

The state argues that nothing changed in 2008. It presented bank statements from the payday lending business into evidence that showed that the flow of money remained the same after the new agreements were signed.

Deputy Attorney General Jan Zavislan said at a recent hearing that money from the business accounts was even used to pay Tucker’s personal expenses, including trips on private jets, property taxes on his vacation home, as much as $2 million a month in expenses for his racing team and $22 million to settle a personal lawsuit against Tucker.

Hoffman didn’t acknowledge the bank statements in his ruling. Instead, he concluded that the 2008 sale was legitimate, saying, “over time the tribes were able to take over operations completely.”

Many of the records presented to Hoffman remain under seal. But Hoffman cites two agreements under seal without saying whether those documents changed the split. The Attorney General’s office argued in court there is no evidence that the revenue split changed.

The state of Colorado first ordered two payday lenders called Cash Advance and Preferred Cash Loans to stop making loans in early 2005. Attorneys tracked the businesses to addresses in Carson City, Nev., and asked a court to cite company officers for contempt.

But attorneys for the Miami and Santee Sioux tribes argued in 2005 that they were the true owners of the businesses, which had no connection to the offices in Nevada. They asked the judge to dismiss the subpoenas and the contempt citations because the payday lending businesses were tribal entities.

It was later learned that Tucker started the payday lenders and set up shell companies in Nevada to hide his identity. Hoffman acknowledged that Tucker turned to the tribes only after his business came under investigation.

Hoffman granted the tribes’ motion to dismiss even while acknowledging that the claims of ownership made in it were not true at the time. But the judge said the only thing that matters is whether the claim of ownership is true today.

The state argues that blocking the investigation will lead to companies paying tribes for their sovereign immunity. Hoffman said that is possible but added, “My job is to apply the law, not to write it. If Congress does not want Indian nations hiring non-Indian operators to engage in payday loan businesses, or does not want Indian nations in the payday loan business at all, it could limit or eliminate tribal immunity for such businesses tomorrow.”

The ruling does not prevent the state from continuing to investigate Tucker personally. It’s less clear whether the state can investigate AMG Services, the payday lending business based in Overland Park, Kan. A spokesman for the Attorney General said that their office is still weighing its options.

Indian tribes tied to payday lender escape state probe

2012-02-27T14:18:12-05:00

Two Indian tribes making payday loans over the Internet, even in states that ban or restrict payday lending, won a court victory Tuesday when a Denver judge blocked the Colorado Attorney General from investigating them further.

The ruling is among a series of recent court decisions posing legal obstacles for states trying to enforce payday-lending laws. Courts have ruled that state regulations don’t apply to businesses owned by tribes. In recent years, a number of tribes have flouted state laws by making loans over the Internet with interest rates as high as 800 percent.

For eight years the Colorado Attorney General has been in court trying to stop businesses affiliated with the Miami tribe of Oklahoma and the Santee Sioux tribe of Nebraska from making loans online. Attorney General John Suthers argued that their claims of tribal ownership are a sham cooked up by Kansas City businessman Scott Tucker, who is better known as an endurance race-car driver.

Tucker started the business in 1998 and approached the tribes only after it came under investigation in Kansas and New York, the court found.

However, the tribes say that their ownership is legitimate. And despite the businesses’ beginnings, District Court Judge Morris Hoffman said not only did the state fail to prove tribal ownership was a sham but added that to him it is clear that the business arrangements today seem not to be shams.

“We’re very disappointed with the court’s order,” said Mike Saccone, a spokesman for the Colorado Attorney General. Attorneys for Tucker and the tribes did not comment on the ruling.

The ruling doesn’t necessarily end the investigation. While the state cannot subpoena the tribes or tribal entities, Judge Hoffman said authorities can still subpoena Tucker and his non-Indian business associates to determine if they still own and control the payday-lending business.

“If Tucker’s grand scheme was to insulate himself from state scrutiny by associating with these tribes, it was not a very good scheme because he and all his non-tribal officer associates remain subject to investigation,” Hoffman wrote.

In fact, the Colorado Attorney General has subpoenaed Tucker and even had a judge issue a warrant for his arrest for contempt when he failed to respond. But Tucker has so far successfully fought off that subpoena in a county court in Kansas.

Tucker’s subpoena is now before a Kansas appeals court, and a spokesman for the Colorado Attorney General said that case shouldn’t be impacted by today’s ruling. Attorneys general from 22 states have filed a brief in the Kansas case arguing that if the subpoena against Tucker is not enforced, it will make it possible for anyone to circumvent state laws merely by operating over the Internet.

The Colorado investigation dragged on for years before authorities were aware that Tucker had any involvement in the business. As detailed in a joint investigation by iWatch News and CBS News, Tucker initially set up shell corporations and a mail drop in Carson City, Nev., to disguise the ownership of the business.

The Colorado ruling did reveal new facts about the case, though much of the evidence remains under seal. According to the ruling, Tucker started the business in 1998 but didn’t approach the Miami tribe until October 2003, not long after two states brought enforcement actions against the payday lending businesses.

Tucker agreed to give the tribe $5 million in working capital and other services to operate the business, with the tribes agreeing to pay Tucker 1 percent of revenues. A similar deal was cut in February 2005 with the Santee Sioux tribe.

Yet state authorities gave a dramatically different account of the business deal. The state reported at a hearing last November that it was Tucker who agreed to pay the tribes 1 percent of revenue. So while Judge Hoffman says the business had total revenues of $180,000 a month in 2008, state authorities say the amount was 100 times greater: $18 million a month. The actual agreement remains under seal.

A spokesman for the Attorney General today stood by its account at the hearing.

The state also said at the hearing that Tucker used money from the payday lending business to pay expenses on his private Lear jet as well as to pay $2 million a month to his racing team.

The businesses make loans under trade names, including AmeriIoan, UnitedCashLoans, US FastCash, 500Fastcash and OneClickCash.

The Federal Trade Commission appears to be investigating these businesses, according to court records. Federal agencies are not prevented from taking action against Indian tribes.

Courts debate validity of Indian-owned payday lenders

Miami,Florida,United States — 2011-12-20T09:37:05-05:00

A six-year legal struggle by Colorado authorities to shutter a business making questionable payday loans over the Internet may soon come to an end.

The battle, highlighted in a recent investigation by iWatch News and CBS News, is over whether a deal cut to sell the payday-loan business to an Indian tribe was merely a sham to give “sovereign immunity” to the business while it was being investigated in several states.

New evidence shows that the Miami tribe of Oklahoma reaps as much as $200,000 per month from payday loans it makes over the Internet, even in states where such loans are illegal.

Yet that’s a pittance compared to the $2 million the tribe’s payday-lending business shells out in some months to the auto-racing team of Scott Tucker, a Kansas millionaire and a minor celebrity in the sport of endurance racing. Tucker competes in races such as the legendary 24 Hours of Le Mans.

As reported by iWatch News, Tucker founded the payday-lending business and continues to work at the company now called AMG Services, managing hundreds of workers in Overland Park, Kan. But Tucker claims he sold the business to the Miami tribe in 2008, at a time when regulators in several states were trying to shut it down.

The tribe’s involvement has stalled state regulatory efforts for years. A California appeals court and the Colorado Supreme Court ruled that if the business is genuinely owned by the tribe, it has “sovereign immunity” and cannot be sued in state courts.

Regulators in both states are now back in state court trying to prove that the tribal ownership claims are a sham known as “rent-a-tribe,” in which a tribe buys an outside company only on paper to shield it from state lawsuits.

Although lawyers have revealed the contents of a number of documents in court, the documents themselves have been sealed and cannot be seen by the public. But evidence presented in court includes new details showing that the tribe received little from the payday lender, despite revenues for the business that ran as high as $20 million per month.

Colorado Deputy Attorney General Jan Zavislan said in a Denver court on Nov. 22 that though Tucker claims now to be only an employee of the payday lending business, he appears to have control of the company’s bank account. Zavislan asked how the tribe could claim to own and operate the business if they allow Tucker to “ransack your AMG Services bank account to the tune of tens of millions of dollars.”

Among the personal expenses paid out of various bank accounts for AMG was the cost of operating Tucker’s $13 million Lear jet, property taxes and other expenses on his $8 million Aspen vacation home, as well as a $22 million settlement of a personal lawsuit against him.

By comparison, the Miami tribe gets only 1 percent of the company’s revenue, far less than Tucker, according to evidence presented at the court hearing.

Tribal affiliations with online payday lending have grown rapidly in recent years.

By one estimate, at least 30 online payday lenders now claim they are not required to adhere to state laws because of their association with Indian tribes. Thousands of borrowers have complained to states and the Better Business Bureau that these loans are misleading and predatory, charging up to 800 percent interest.

AMG Services is now under investigation by the Federal Trade Commission, according to records introduced in court. Sovereign immunity doesn’t bar investigations by federal agencies such as the FTC.

The tribe originally said in court that it was doing business as Cash Advance back in 2005, when Colorado’s investigation first started. However, new records show that the Miami tribe cut a deal with Tucker in June 2008 to pay $120,000 for Tucker’s payday-lending business called CLK Management, which at the time was grossing $16 million to $20 million per month. The company then merged and changed its name to AMG Services.

By comparison, the Selling Source, a Las Vegas company that signs up borrowers online for AMG Services, was bought by the private-equity company London Bay Capital in 2008 for $130 million. The Selling Source was smaller than AMG, with monthly revenues in 2007 of about $10 million.

Zavislan argued that the tribe doesn’t really own AMG Services.

“They lent their name to them and they did nothing more than that in exchange for monthly payments,” he said.

However, attorneys for the Miami tribe said the ownership is real. Attorney Conly Shulte said that while the tribes hire contractors to manage the business, business executives and employees of the Miami tribe as well as the Santee Sioux tribe of Nebraska personally approve thousands of loans each month.

“The reason the board minutes don’t describe any of the day-to-day activities ... is because that’s not what board(s) of directors do,” Schulte said. “They govern from the 10,000-foot level.”

District Court Judge Morris Hoffman in Denver asked if a company under investigation could cut a deal to sell itself to an Indian tribe for a small amount and a nominal cut of income just to avoid having to answer subpoenas. Schulte said yes, a business could cut such a deal for sovereign immunity. The amount the tribe pays for the business or the amount of income it agrees to receive is irrelevant, he said.

“The remedy is to go to Congress” to change the sovereign immunity laws, Schulte said.

Zavislan said, “The U.S. Supreme Court has talked about prohibiting, preventing tribal reservations from becoming havens for fugitives. And that’s exactly what would happen if you simply allowed ‘Business A’ to create all kinds of havoc in the real world and then go say, ‘Oops. Sold it to a tribe.’”

The notion that a tribe could “invest in IBM and therefore make IBM immune … is ridiculous,” he said.

The Colorado attorney general began its investigation of the online payday lenders in late 2004, issuing subpoenas to businesses that turned out to be shell companies set up by Tucker. Months later, the Miami tribe appeared in court to say that it was the true owner of a payday lender called Cash Advance, arguing that the state of Colorado had no legal authority to subpoena it.

Zavislan said that new documents, which include email exchanges, show that Tucker went to the tribes in the midst of the investigation to cut a deal. But he said no purchase agreement was actually signed in 2005. He said the new revelations now raise questions about the truthfulness of the tribal officers who filed sworn statements in court.

The case went all the way to the Colorado Supreme Court, which ruled last year that businesses that are arms of a tribe are exempt from court actions and subpoenas. The justices said the burden was on state authorities to prove the business was not a true arm of the tribe before it could issue subpoenas or take any action.

Judge Hoffman is expected to rule on whether the business is an arm of the tribe soon.

Malini Mithal, an official at the FTC, said she couldn’t comment on any pending investigation. However, she said that online payday lending investigations are a high priority at the FTC. Earlier this year, the agency filed a lawsuit against a payday lender claiming to be tribally owned. Mithal said there’s likely to be new cases filed.

In trouble from an online payday loan? You might not have to repay it

2012-04-02T17:30:30-04:00

Wayne Coons felt a sense of panic when he realized that the $350 payday loan he got over the Internet was costing him hundreds of dollars more than he thought.

Having borrowed from a storefront payday lender once, Coons thought online loans worked the same way. The man from Puyallup, Wash., expected the lender, Ameriloan, to deduct $457 from his bank account on his next payday to pay off the loan.

But when Coons checked his account two weeks after getting the loan last February, he was shocked to discover that Ameriloan had withdrawn only $105 and that he still owed $450 on his $350 loan. Coons, like many borrowers, had not carefully read the fine print. In fact, Ameriloan was allowed to “renew” the loan every two weeks, withdrawing $105 several more times without a penny of it reducing Coons debt. In all, the $350 loan could cost Coons more than $1,000.

Coons was fortunate. He quickly got in touch with the state Department of Financial Institutions and was told that Ameriloan is not licensed in the state of Washington to make payday loans.

As a result, Ameriloan could not make Coons pay back the loan. He closed his bank account and is off the hook.

“It’s illegal to make a loan without a license,” explained Deborah Bortner, the department’s director of consumer services. “If you’re not licensed, it (the loan) is not collectable and it’s not enforceable.”

The dirty little secret among online payday lenders who violate state laws is that they cannot win in state court, regulators say. Indeed, Bortner said she’s never seen a case where an online payday lender took a borrower to court.

Regulators in some states that license payday lenders routinely advise borrowers to follow Coons’ example. Check with state authorities to see if the loan is illegal, and if it is, close your account.

“If someone makes you a loan that’s illegal, either because they don’t have a license or they violate usury laws, you’re not under any obligation to pay it back,” said Norman Googel, an assistant attorney general in West Virginia.

Googel advises all borrowers who might be tempted to get a payday loan online, “Just don’t do it.”

Rick Brinkley, the head for Better Business Bureau of Eastern Oklahoma, agreed. He’s heard from more than 2,000 consumers who were caught off guard by the terms of online payday loans. When they can’t keep up with the payments, Brinkley said, “They’ve just entered a new world of hell that they weren’t prepared for.”

One problem is that many online payday lenders claim that state laws don’t apply to them. Some lenders say they are beyond the law because they’re based offshore. Others claim to be owned by Indian tribes, giving them the cloak of tribal sovereign immunity. Still others hide their ownership behind an impenetrable curtain of shell companies.

That means that some online payday lenders make loans even in 18 states that essentially ban the practice.

The industry defends this position, arguing that state laws don’t necessarily apply to them. Lisa McGreevy, the president and chief executive officer of the Online Lenders Alliance, said members of her organization utilize “an array of legal business models” and argues that consumers should have a variety of choices when borrowing.

"As the Kansas City Federal Reserve stated in a recent report, restricting short-term loans ‘could deny some consumers access to credit, limit their ability to maintain formal credit standing, or force them to seek more costly credit alternatives.”

The Miami tribe of Oklahoma , which claims to own several online payday lenders, say its loans help people in desperate situations from possibly losing their cars or homes.

Angela Vanderhoff skoffs at this notion. She says she stupidly borrowed $400 from one of the tribe’s lenders and almost lost her car as a result.

“It was the biggest nightmare I’ve ever gone through in my life,” Vanderhoff said.

Because the lender could draw directly from her bank account, Vanderhoff felt she had no control. When she was in an accident, she says she called them to arrange to delay a payment. But instead, the lender tried to withdraw the money anyway – four times in a single day. She ended up having to pay $200 in overdraft fees on top of the interest.

Vanderhoff said she called the lender to try to pay off the loan in full, but her requests were ignored.

Brinkley of the Better Business Bureau says the lenders make it difficult to pay off the loan early. A typical contract will tell the borrower to contact the lender three full business days in advance if you don’t want the loan renewed. Vanderhoff said she’d do that but then later be told that they didn’t have any record of her request or that she didn’t put it in writing.

Borrowers complain that when they fall behind in the payments, they receive constant phone calls from the lender. The lender will even call friends and the boss, names that are required when you fill out a loan application.

The Federal Trade Commission recently got a preliminary injunction order against Western Sky Financial and other tribal payday lenders in South Dakota that were sending letters to employers insisting that they had the right to garnish wages without a court order. FTC attorneys say that tribal lenders “do not have legal authority to garnish the pay of consumers who owe an alleged debt without first obtaining a court order.”

The suit also says it’s a violation of federal law to require automatic debits from a bank account as a condition of getting a loan.

Online payday lending is big business, and it’s grown rapidly as people hard hit by the recession struggle to pay their bills. In 2010, the industry made $10.8 billion in loans, up nearly 90 percent from 2006, according to Stephens Inc., an investment firm that tracks the industry.

The FTC encourages people considering payday loans to consider alternatives, such credit unions or small-loan companies.

Even the Online Lenders Alliance offers consumers advice, such as be sure to read the terms of the loan and don’t agree to any loan that you cannot afford.

Race car driver Scott Tucker drew an elaborate facade around his payday loan businesses

California,United States — 2013-01-23T14:49:19-05:00

Read the first part of this story here.

A deputy sheriff in Olathe, Kan., ticketed race car driver Scott Tucker late one night in October 2008 after clocking Tucker’s Mercedes-Benz CLS63 going 86 mph in a stretch of Interstate 35 posted at 60 mph.

Two days later, Tucker’s wife, brother and sister-in-law as well as several businesses with ties to the payday loan mogul suddenly donated a total of $4,000 to the campaign of a candidate for local district attorney — the office that prosecutes traffic tickets.

Among the businesses that donated $1,000 to the campaign were two payday loan companies that the Miami Tribe of Oklahoma claims to own.

Weeks later, the ticket was reduced to improper parking, to the surprise of the deputy who ticketed Tucker. The change kept Tucker’s driving record clean.

Whether or not the contributions played a role in ticket being reduced, the episode shows a strange commingling of the interests of Tucker and the Indian tribe. Regulators in Colorado and California are investigating whether Tucker is merely using the tribes to circumvent state laws.

Tucker started a controversial online payday lending business that several states have tried to shut down. Tucker now says Indian tribes own the business and he is just an employee. That arrangement gives the payday lending business the cloak of sovereign immunity and has stymied the efforts of state regulators to stop the company from making illegal loans in their states.

Yet an iWatch News investigation found that Tucker is living the life of luxury and spending a fortune on his racing hobby, while the tribes may only be getting a small piece of the revenue from the business.

The tactic of affiliating with Indian tribes has been widely copied among online payday lenders, frustrating state regulators and drawing the condemnation of payday lending’s storefront brethren.

Storefront lenders generally don’t do business in 18 states that restrict payday lending. And those that have ventured into the online market usually get licensed and obey state laws, said Jean Ann Fox of the nonprofit Consumer Federation of America.

The head of the payday lending trade group Community Financial Services Association of America, D. Lynn DeVault, said that using tribes to avoid state laws violates the association’s standards “and would lead to the automatic expulsion of a company in violation.”

Critics call the tactic “rent-a-tribe.”

Tucker acknowledged Friday for the first time that he works for AMG Services, the paydaylending business that the Miami Tribe of Oklahoma says it owns and operates. He says a confidentiality agreement prevents him from talking about it.

The chief of the Miami tribe, Thomas E. Gamble, defended the business, saying the tribe owns and operates it. Gamble says the business obeys tribal and federal laws but he didn’t say whether it obeys state laws. At least five states have tried through legal proceedings to shut down the business for violating state laws. Several other states have either instructed the business to stop making loans or warned consumers about it.

Tucker, who lives in the upscale Kansas City suburb of Leawood, told a judge that he no longer controls the payday lending business. But iWatch News found evidence in court and public records that Tucker still pulls the strings on the business he founded. The evidence includes:

Among the companies that gave $500 campaign donations to the prosecutor on the same day as several of Tucker’s relatives were two tribal businesses, AMG Services and MNE Services.
AMG Services operates out of an office complex in Overland Park, the same office that Tucker lists as his own in Securities and Exchange Commission filings.
AMG Services pays the property tax on Tucker’s $8 million vacation retreat in Aspen, Colo., according to county records.
One of AMG Services biggest vendors said in a lawsuit that Scott Tucker in 2009 was the owner and chief officer of AMG Services.

Most revealing of all, bank records show Tucker and his brother Blaine were the only the two people able to sign for four payday lending businesses of one tribe. The tribes may only receive a sliver of the revenue from the payday lending business.

Rags to riches story

Scott Tucker’s life is both a rags-to-riches and get-rich-quick story. He grew up in the Kansas City area, graduating from a Jesuit high school and attending Kansas State University for two years, where he studied business administration. Tucker has a criminal past. In April 1988, at the age of 26, he borrowed $50,000 from American Bank of Kansas City, offering a new Porsche as collateral. Court records show that Tucker lied on the application; he had sold the sports car months earlier.

A year later, Tucker wrote a bad check for $1,200 to a moving company hired to transfer two loads of used furniture for a business, according to court records.

In the meantime, Tucker participated in a bogus loan scheme to bilk money out of businesses, court records reveal. While a partner in Oregon ran newspaper and magazine ads throughout the country offering commercial loans, Tucker posed as the president of a seemingly high-powered investment bank in Overland Park called Chase, Morgan, Stearns & Lloyd. The operation was a fraud, collecting more than $100,000 in “advance fees” from at least 15 borrowers without providing any loans.

Tucker ultimately pleaded guilty in federal court to two felony charges of mail fraud and making a false statement to a bank. A Missouri state judge found him guilty of a felony charge of passing a bad check. He was sentenced for all three crimes to serve a year in Leavenworth federal penitentiary, followed by three years of probation. He got out of prison on June 8, 1992.

Then Tucker went into the short-term lending business. In 1997, he met Philadelphia businessman Charles Hallinan, who offered the following account in a lawsuit he would eventually bring against Tucker.

Hallinan was already in the payday lending business. The two hit it off. Hallinan viewed Tucker as a protégé and decided to bankroll another payday lending company with him, making Tucker president of the company and letting him run it from Overland Park. Tucker agreed in writing not to open any competing businesses.

On Sept. 19, 1997, Hallinan agreed to loan Tucker $500,000. Tucker signed the revolving loan note.

A month later, Tucker filed for Chapter 7 bankruptcy. In the bankruptcy records, Tucker did not disclose his new business as president of a payday lending company. Tucker listed a total debt of $583,000, including more than $220,000 owed to the IRS.

The court cleared Tucker of his debts. Though Tucker had promised Hallinan he would not open any competing businesses, Tucker started a new company in 2001 called CLK Management, listing himself as the owner. Soon, Tucker was setting up dummy companies in Carson City, Nev., using them as mail drops for payday lenders he called Cash Advance, Preferred Cash Loans and UnitedCashLoans.

Starting in 2004, Tucker registered new trade names for payday lenders, including AmeriIoan, UnitedCashLoans, US FastCash, 500Fastcash and OneClickCash. Court documents show that by 2005, Tucker had teamed up with Indian tribes, continuing to run the payday lenders out of Overland Park.

CLK Management was becoming a major business. By 2006, it took up two floors of an office complex in Overland Park, and eventually employed as many as 400 workers, according to former employees and court records. One of its web sites claimed that it was making thousands of loans each day.

One former employee who worked there at the time swore in a court statement that the business was using addresses on tribal land for “protection.” William James said no one was allowed to reveal where the company was actually located and that his boss once said, “They don’t touch us on Indian reservations.”

Borrowers complained to state regulators about the loans’ high interest rates and the lenders’ aggressive collection tactics. Regulators in California suffered a major setback when an appeals court ruled that because of the tribal affiliation, the lenders had sovereign immunity. With the corporate shell games and the tribes’ involvement, states were finding it difficult to even prove who was doing the lending.

Some companies locate off shore to try to hide from authorities. With scant effort, Tucker was able to hide CLK Management at an office park in suburban Kansas City.

Colorado AG’s seven-year chase

The Colorado attorney general, John Suthers, had been trying to stop Tucker’s lending businesses since 2004. At first, consumers complained about a lender called Cash Advance based in Carson City. But in a surprise move, two Indian tribes—the Miami and Santee Sioux—appeared in court to claim that they were the true owners of the payday lenders. The tribes said the lending business had no connection to Carson City, though there is irrefutable evidence that Tucker set up those shell companies.

By the end of 2007, the investigation in Colorado was continuing to unfold, where complaints about new online payday lenders poured in. Investigators suspected Tucker was behind these new lenders. The Colorado attorney general subpoenaed CLK Management and Tucker.

CLK’s lawyer responded with defiance. He argued derisively that Colorado’s subpoenas had no power in the state of Kansas.

"I can only conclude in your zeal to pursue CLK you believe there are no limitations on your power,” CLK lawyer Thomas Bath wrote back. "We will continue to ignore subpoenas and orders improperly and unlawfully obtained."

The attorney general wasn’t giving up. In March 2008, his office asked a Denver judge to cite Tucker for contempt of court. Tucker himself didn’t respond in court, but oddly attorneys for the tribes did. This puzzled Denver District Judge Morris Hoffman because the tribes had never mentioned any connection to Tucker or anyone else.

“Are you representing Mr. Tucker?” Hoffman asked tribal attorney Conly Schulte.

“No, your honor,” Schulte replied.

“Is Mr. Tucker part of the tribal entities, or connected to them in any way?” the judge asked.

Schulte stumbled a bit for words, arguing that because any questions challenged the tribes’ sovereign immunity, “I feel obligated to my client to respectfully decline to answer that.”

Hoffman cited Tucker for contempt and two months later ordered a warrant for Tucker’s arrest. In the meantime, the tribes finally acknowledged in a court filing, without ever elaborating on the details, that they had a relationship with CLK.

Because Tucker was cited on a civil—not criminal—contempt charge, he can only be arrested if he sets foot in Colorado. Three weeks later, he did just that. Tucker, who by now was starting his racing career, set a track record in a Ferrari 360 at the La Junta Raceway in Colorado.

The state, not paying attention to Tucker’s racing schedule, missed its chance to arrest him.

With CLK Management now in Colorado’s crosshairs, Tucker would make the situation even more confusing. He filed corporate papers in Kansas claiming that CLK no longer existed, that it had merged with a new company owned by the Indian tribes. The new company was called AMG Services. Tucker said he had no control over the company’s books.

Based on Tucker’s word alone, a Kansas judge ruled that CLK merged with AMG on June 24, 2008. The target of Colorado’s investigation—first Cash Advance, then CLK Management—kept moving.

Partner turns on Tucker

By then, state authorities were not the only ones accusing Tucker of breaking the law. His own business partner, the man who had bankrolled him, accused Tucker of being a thief.

Charles Hallinan had put up the cash for Tucker to run the payday lending business. For years, Tucker had called Hallinan each Saturday at his home in Boca Raton, Fla., to give an update on their company called National Money Service.

According to a lawsuit Hallinan later filed in Las Vegas, Tucker acknowledged to Hallinan that he had created a new company in Overland Park called CLK Management and that Indian tribes were involved. But Hallinan said Tucker led him to believe that CLK Management was just part of their company and that, in truth, they still owned the payday lending business.

By 2006, the weekly calls were replaced by sporadic emails. Hallinan had become suspicious and sent an accountant in May 2008 to look at the books of their company. According to Hallinan’s lawsuit, the accountant discovered the company “had essentially been ransacked and substantially all of its assets, cash and profits diverted.”

Hallinan accused Tucker of stealing the business by moving everything over to CLK Management. Now, it looked as though Tucker might be moving the business again to a new company, Hallinan alleged.

The lawsuit revealed interesting details about Tucker’s relationship with the tribes. Hallinan alleged that Tucker held “significant influence” over the Indian tribes. He released a letter from Tucker that showed that on July 31, 2008, Tucker had completed new “management” and “power of attorney” agreements with the tribes.

What’s more, Tucker’s letter revealed a proposal, as part of a settlement, to share with Hallinan all money from the tribal accounts after an undisclosed amount was paid to the tribes. The lawsuit was settled.

Two companies working for the Modoc tribe recently revealed what the tribe gets paid from the payday lending business. Answering questions in a class-action lawsuit from borrowers in California, the companies said the tribe received between 1 percent and 2 percent of revenues from the loans, even though borrowers pay nearly 800 percent in interest.

But no one from the tribe is even able to sign for several of the tribe’s bank accounts used for payday lending. In the same suit, US Bank disclosed the only two people able to sign checks on four tribal accounts were Scott Tucker and his brother Blaine Tucker. Scott Tucker identifies himself on the accounts as the “treasurer” of the Modoc tribe’s corporation. An attorney for the tribe said recently that Tucker is no longer the company’s treasurer.

The Miami and Santee Sioux tribes are still fighting in a separate class-action lawsuit to keep their financial details secret.

Tucker’s biggest break came from the Colorado Supreme Court last November. The court made it easy for anyone to conspire with an Indian tribe to break state law.

The justices may have had no idea who Scott Tucker was. His name never came up during the hearing. One of the justices asked what the tribes’ connection was to Cash Advance of Carson City, Nev., the name and address given on the original loan documents. But the tribes’ attorney, Conly Schulte, said the confusion was a case of mistaken identity.

“We submit that there is no connection other than the fact that the Nevada corporations used the same unregistered trade names,” Schulte told the justices. “Quite frankly, the name ‘Cash Advance’ is quite common in this industry.”

The attorney for Colorado knew that there was a connection. It was Scott Tucker, who had at first made the loans through a shell company in Carson City to hide his ownership. When that didn’t work, he cut a deal with the tribes. The lawyer from the attorney general’s office didn’t mention Tucker in court because his role wasn’t yet identified in the court record.

At the hearing, the justices described their feelings of being hemmed in by federal law. On Nov. 30, the court announced its decision. The court put the burden on the state to prove whether a business claiming to be an arm of a tribe was lying. State attorneys general read the ruling as a major defeat.

In a partial lone dissent, Justice Nathan Coats argued that the decision opens the door for “criminally unscrupulous predators, especially in the current technological environment,” and makes it “virtually impossible for the state to protect its own citizens against even the most blatant acts of fraud.”

Despite the Colorado Supreme Court ruling, the attorney general there is still trying to shut down Tucker’s operation in his state. And it found new evidence from a lawsuit filed in Las Vegas.

Though Tucker says he has no control over AMG Services, Tucker went to a company that sells leads to online payday lenders in the summer of 2009 and complained that someone was stealing AMG Services’ leads. The owner of the lead company identified Tucker in a lawsuit as the owner and chief officer of AMG Services. In 2008, AMG Services paid the vender $80 million for its leads.

Colorado is continuing to investigate Tucker. While the tribes can claim sovereign immunity, Tucker himself cannot. Since 2008, the state of Colorado has been trying to enforce a subpoena ordering Tucker to appear in a Denver court.

The biggest obstacle has been a local judge in Kansas. Tucker went to Johnson County District Judge Charles Droege to block Colorado’s subpoena. The judge agreed to do it without even asking the Colorado attorney general for a response.

But when the attorney general showed up in Droege’s court, the judge changed his mind. He would enforce the subpoena, but only after giving Tucker six months to go to Denver and resolve the matter in court there. Tucker chose not to go to the Denver court, which had already cited him for contempt and issued an arrest warrant.

After the six months were up, Tucker’s attorneys continued to plead with Droege that Colorado’s subpoena had no power in Kansas. In a stunning reversal of his earlier reversal, Droege agreed and ruled that the attorney general of Colorado had no jurisdiction to issue a subpoena in Kansas. He ordered Colorado to stop trying to enforce the subpoena or to take any action that would cause any “further annoyance, embarrassment, oppression or undue burden” on Tucker.

The judge also blocked an order by the Denver judge that instructs Tucker to stop making loans in Colorado.

States band together

Colorado appealed the decision. Last month the attorneys general of 22 states, led by Kansas, filed a brief in the Kansas appeals court blasting Droege’s decision. They pointed out that the U.S. Constitution requires states to honor the laws and court decisions of every other state.

The states argued that unless Droege’s decision is overturned, “Businesses will be able to commit unlawful acts in [other states] with impunity, as long as all condemning evidence is kept elsewhere.’’ That, the brief said, “renders states incapable of enforcing laws meant to protect their citizens."

Tucker’s story exposes a myriad of challenges for state regulators and the courts in trying to enforce laws against companies operating over the Internet and hiding behind shell companies.

The simple act of setting up shell companies can delay enforcement actions for months. And merely changing a company’s name can make settlement agreements or court orders moot.

Kansas was the first state to go after Scott Tucker. But Danny Vopat, the lead attorney in the case for the Kansas Bank Commissioner, says he never knew that Tucker, living and working in the same state, was actually behind the payday lenders he battled for more than two years. Vopat settled with one of Tucker’s shell companies in Nevada, a shell that no longer exists. Tucker quickly abandoned the trade name Cash Advance. For those reasons, Vopat says it’s unclear that Tucker would violate the settlement agreement if he started lending in Kansas again.

Now with the tribal immunity shield, some states say they don’t have the resources or legal expertise to fight people like Tucker. Deborah Bortner of the Washington Department of Financial Institutions said she consulted with attorneys about tribal payday lenders, who told her “we really don’t have a leg to stand on.”

There is hope of federal action. Tribal immunity cannot stop federal regulators, who have the right to investigate and take action against tribes. And in the financial reform act passed last year, Congress gave the new Consumer Financial Protection Bureau the explicit power to regulate payday loans.

Without a confirmed director, the new consumer agency is limited in its powers. Still, the agency is expected to make oversight of payday loans a top priority. Consumer lawyers who’ve talked to the bureau officials say that the agency is especially concerned about lenders who flout the law, including payday lenders who claim to be affiliated with tribes.

The bureau can’t enforce state laws. But it can subpoena tribal records and then share those documents with state regulators.

Yet industry analysts say that Indian tribes are now clamoring to get involved in payday lending. Frank Cotton, an industry analyst in Atlanta, estimates at least 30 payday lenders are affiliated with Indian tribes. He said the number may even be as high as 60.

Meanwhile, Tucker has a heavy schedule of racing ahead. He recently made the unusual and costly decision to switch in mid-season to a new custom-built vehicle for the Le Mans series.

His publicity machine continues to promote Tucker as the next superstar of the racing world, recently describing him as “a real-life action figure [who] can be found working his magic at racetracks all over the world.”

“With all of his recent success, fans of the three-time champion may have a hard time picturing Tucker in anything other than a driver’s suit, but he was a successful businessman long before he was a race car driver,” Tucker’s publicist said in a press release in July. “Give that man a cape.”

CORRECTION: The original story incorrectly quoted Frank Cotton about estimates of tribal/payday connections. The sentence now reads, "Frank Cotton, an industry analyst in Atlanta, estimates at least 30 payday lenders are affiliated with Indian tribes. He said the number may even be as high as 60."

Payday lending bankrolls auto racer's fortune

Kansas,United States — 2013-01-04T14:42:12-05:00

Scott Tucker used stealth to become a millionaire. Now the mysterious businessman from Kansas is spending his fortune to become a famous auto racer.

Though Tucker has not won any premier races outright, his publicity machine already compares him to NASCAR superstar Jimmie Johnson. It produced a slick documentary of his team’s third-place finish at a Daytona race which played at film festivals and aired on the Discovery Channel. A glowing Wall Street Journal profile last year dubbed Tucker as "Racing’s One-in-a-Million Story."

Tucker competes mostly in a special class for wealthy owners, taking turns behind the wheel with hired professional drivers. But he burst through obscurity last year to become – at age 48 – rookie of the year in endurance racing’s American Le Mans Series.

Tucker’s quest for fame in sports contrasts sharply with his secrecy in business. He describes himself simply as the CEO of Westfund, which is a fledgling private-equity firm with no visible marketing and a mail drop as a corporate office.

What Tucker doesn’t publicize: he is an ex-convict who runs a controversial business that regulators in at least five states have tried to shut down for violating their laws. Hiding behind a labyrinth of shell companies and operating from the ether of the Internet, Tucker’s businesses make payday loans over the Web even in states where they are outlawed. He offers quick cash to people desperate enough to borrow money from a faceless Web site, even signing over access to their bank account to total strangers. And he charges nearly 800 percent interest on loans that take months to pay off.

iWatch News found that some of Tucker’s tactics are common among businesses operating on the fringes of the law. By setting up a confusing array of shell companies and selling over the Internet, businesses are often able to frustrate state investigators trying to figure out simply who’s who.

But Tucker’s most innovative tactic has given businesses a new, powerful tool for eluding state authorities. The tactic has survived major court challenges, but the practice is so questionable that even storefront payday lenders – hardly known as paragons of business probity – denounce it as unethical.

Tucker has partnered with a number of small Indian tribes to provide his payday lending business with the cloak of tribal sovereign immunity. Under federal law, tribes are equal to states as sovereign powers. So they are immune from being sued in state court.

Tucker says his payday lending businesses are now owned by the Miami and Modoc tribes of Oklahoma as well as the Santee Sioux of Nebraska. However, iWatch News found evidence in court and public records showing that Tucker secretly runs the payday lending business from his offices in Overland Park, Kan.

Lawyers in the Colorado attorney general’s office described Tucker’s tactics as a “web of deceit.” Others refer to it as “rent-a-tribe.”

In a written statement Friday, the chief of the Miami tribe, Tom Gamble, said the payday lending business was “100 percent tribally owned and operated.” For the first time, he acknowledged Tucker is an employee of the tribe’s payday lending business but did not elaborate on his role. The Modoc and Santee Sioux declined to comment.

Tucker himself said, "Due to a confidentiality agreement, I am not permitted to discuss the business of my employer."

Tucker has eluded the grasp of several state authorities. Colorado Attorney General John Suthers has been trying to stop Tucker for seven years. He convinced a Denver judge to order Tucker and his company to stop making payday loans in Colorado. He even has a warrant for Tucker’s arrest for violating a court order. Yet Tucker is so contemptuous of the warrant that, after it was issued, he bought an $8 million vacation home in Aspen, Colo., through a limited partnership in his wife’s name, and he now flies to Colorado undetected on his private Learjet that retails for $13 million.

The contrast between Tucker’s lifestyle and those of the tribes that claim to own the lucrative business is stark.

Tucker flashes his wealth on the race track. He is reported to have a fleet of 15 race cars, including custom-built prototypes that can cost more than $500,000. He employs a team that includes accomplished drivers, among them the 1993 Le Mans winner Christophe Bouchut of France. He travels constantly, even shipping his cars overseas for races. In France last June, his team finished tenth in the grueling and legendary 24 Hours of Le Mans.

Meanwhile, the Miami tribe, whose business offices adjoin farm land and rundown properties, cautioned its members last year that it was struggling through tough financial times after losing partial ownership of a casino in a small Oklahoma town. The tribe won’t talk about the presumably lucrative payday lending business it claims to have owned since at least 2005. But the chief said in the tribal newsletter last year that hard times were forcing the tribe to consider layoffs and other budget cutting measures.

The Miami and Santee Sioux tribes have tried to obscure their connection to Tucker in court despite an irrefutable paper trail. Despite this effort, the Colorado Supreme Court last November handed the tribes and Tucker’s businesses a major victory. The court ruled that businesses claiming to be part of a tribe have sovereign immunity, too. That protection even covers business done off the reservation.

The justices also ruled that the state has to prove a business is not an arm of an Indian tribe before it can take court action or issue subpoenas. That puts authorities in a Catch 22 – having to prove a company is lying without the power to compel the company to answer questions.

Tangled web frustrates states

Some states have given up trying to stop illegal online payday lenders claiming tribal affiliations. Regulators in Washington state and North Carolina concluded that the effort would be too costly and difficult. Yet industry analysts say Indian tribes are now clamoring to get involved in payday lending. Frank Cotton, an industry analyst in Atlanta, estimates at least 30 payday lenders and possibly double that number are affiliated with Indian tribes.

Still, states are banding together against Tucker in one court battle. In 2009, Tucker’s lawyers convinced a local Kansas judge to block Colorado court orders, arguing that Colorado courts have no power in Kansas. But last July, attorneys general from 22 states joined forces to argue in a Kansas appeals court that unless it reverses this judge’s decision, any culprit could violate a state’s consumer laws simply by operating out of another state.

Meanwhile, the business of online payday lending is sizzling. In 2010, revenue was up 32 percent, with online payday lenders making $10.8 billion in loans in the United States, according to Stephens Inc., an investment firm that tracks the industry. That equates to more than 30 million loans, with Stephens estimating that the loans racked up interest and fees of $2.7 billion. In contrast, revenues for storefront payday lenders are fizzling.

Tucker’s operations are likely only a sliver of that business. While exact figures on how much his operations make are unavailable, one court document revealed that Tucker’s business paid $80 million in 2008 just for sales leads. That suggests he could be making millions of online payday loans a year.

Many of Tucker’s borrowers complain about being harassed. Melissa Rush of Vancouver, Wash., tears up about the never-ending phone calls from online payday lenders to her cell phone, her friends and her co-workers.

In January 2009, the former mortgage loan officer borrowed $300 from US FastCash, one of Tucker’s brands. She couldn’t keep up with the payments, which totaled $1,200, and ended up borrowing more to try to pay off existing loans. That only buried her deeper.

Now the calls are constant. In fact, US FastCash called while an iWatch News reporter interviewed her. As a reporter listened in, Rush asked 31 times for the company’s address. She wanted to write a letter telling them to stop calling her. After repeatedly ignoring her request, the debt collector finally said he didn’t have to give her an address.

Rush, who ironically is a debt collector herself, has researched the company but says she can’t figure out who’s really behind it. She had never heard of Scott Tucker.

The Miami tribe's chief acknowledged that there are complaints from borrowers who don’t pay off their loans. But he defended the business, saying that it “provides a vital service to many Americans who would otherwise be without access to short-term financial assistance. For many of our customers, the alternative to an online loan would be, at best, simply to write a bad check, or, at worst, the prospect of bankruptcy and the loss of their home, or worse yet, pressure toward more desperate and unproductive behaviors.”

In the past five years, the Better Business Bureau of eastern Oklahoma has received more than 2,000 complaints about payday lenders tied to Tucker and the tribes. The bureau’s chief officer, Rick Brinkley, has gone to the tribes’ offices to investigate without any success.

“Most people think that loan sharking is illegal,” said Brinkley, who is also a Republican state senator in Oklahoma. “The reality is that in this particular case if you can become affiliated with a tribe and be able to avert local and state laws then, in my opinion, apparently loan sharking is legal.”

The beginning of the legal fight

An epic legal saga in Colorado began on Nov. 3, 2004, when a woman sent two brief letters complaining to the attorney general.

Desperate for cash, the woman had found a pair of payday lenders online willing to deposit a total of $550 directly into her bank account. What she hadn’t given much thought to, or didn’t understand, was that the two loans came with an interest rate of nearly 800 percent. In interest alone, the five-month loans would cost the cash-starved woman $1,575.

The woman, whose name the state won’t reveal, said she had discovered that the loans were illegal. They violated Colorado’s payday loan laws. On top of that, neither lender – Cash Advance and Preferred Cash Loans – was licensed to make loans in the state.

The two lenders seemed connected, each operating exactly the same way. Even more telling, they shared a common address at a strip mall in Carson City, Nev. But investigators couldn’t tell who was behind these lenders.

The Colorado attorney general dashed off letters, ordering Cash Advance and Preferred Cash Loans to stop making illegal payday loans in the state. Cash Advance ignored the order. Curiously, Preferred Cash Loans sent back a brief, unsigned note, saying it had forgiven its loan to the woman. But there was no promise to stop lending in Colorado.

The legal wrangling quickly escalated. Still, both Cash Advance and Preferred Cash Loans kept ignoring court orders. By June 2005, the attorney general asked a Colorado judge to cite the lenders for contempt.

At that point, the case took an unexpected twist that left the state of Colorado’s top law enforcement official stumped to this day.

On July 20, 2005, out of nowhere, two Indian tribes — the Santee Sioux of Nebraska and the Miami of Oklahoma — swooped into court and proclaimed that they were the true owners of Preferred Cash Loans and Cash Advance. The next day, the company based at the mysterious Carson City address said in court documents that it had nothing to do with Preferred Cash Loans or Cash Advance.

It seemed almost comical. After all, the woman’s contracts had the address in big, bold letters: 2533 N. Carson St., Carson City, Nev. Yet the tribes swore that they had no offices there.

How could that be? One of the lenders had already forgiven the loan. Besides, the attorney general asked, how did the tribes even know about this petty legal tussle? Why were they getting involved when they faced no legal sanctions themselves? Why would they defend total strangers?

As absurd is it seemed, the tribes’ involvement erected a powerful legal shield: Tribes cannot be sued in state court.

As a result, the case has been bogged down in court for seven years now. The complicated legal issues have also stymied efforts by other states to halt the lending abuses. Amid the confusion, a controversial industry keeps thriving.

At the same time in the neighboring state of Kansas, the bank commissioner had been trying to stop the online payday lender Cash Advance from making illegal loans for more than two years. By 2005, the Colorado and Kansas cases against Cash Advance were on parallel tracks. But paradoxically, Cash Advance was making claims in a Kansas court that contradicted statements it was making in a Colorado court.

In Kansas, Cash Advance decided to settle. But the company officer who signed the settlement papers for Cash Advance was from a Carson City company called C.B. Services. Only two months earlier in Colorado, C.B. Services claimed it had no connection to Cash Advance. The discrepancy is irreconcilable.

And while the Miami tribe had already claimed in Colorado that it was the true owner of Cash Advance, the tribe made no such claim in Kansas.

Something wasn’t right.

Enter the shell player

James Fontano of Carson City was the answer to the riddle. In Kansas, Fontano swore in an affidavit that he was the president of Cash Advance. But in Colorado, Fontano swore in an affidavit that he had no connection to Cash Advance.

It would take perplexed attorneys in Colorado another two years to finally confront Fontano face-to-face for a day of closed-doors interrogation.

Fontano revealed that his true trade was being an imposter. For a small fee, Fontano would create a shell company and pose as its chief executive officer. It was a way, Fontano acknowledged, that “clients could conceal themselves from public view.” He did this for hundreds of companies.

Setting up shell companies and posing as officers is a legal and thriving business in Nevada, although in 2006 Fontano landed in federal prison after pleading guilty to charges that he and others provided clients with a tax evasion scheme. Today, the IRS claims that Fontano, who now works at a Utah gift shop, still owes it $3.5 million.

Fontano was not the mastermind behind the payday lenders. In fact, he was only one layer of a multilayered façade.

While Fontano listed himself as the officer of a shell company called C.B. Services, the payday loans were offered on the Internet with trade names such as Cash Advance. In addition, the address in Carson City on the loan documents was only a mail drop.

When asked who really ran the payday lenders, both Fontano and the company managing the mail drop pointed to the same man: Scott Tucker. All mail was being forwarded to Tucker’s business in Overland Park, Kan.

The layers of deception were so thick that Fontano knew nothing about the Indian tribes and very little about Tucker, whom he never recalls meeting. “I did not have a lot of knowledge of what he was doing,” Fontano said.

The two affidavits were different for a simple reason. Fontano said attorneys paid by Tucker—though listed in court as representing Fontano—wrote the affidavit in Colorado, where Fontano claimed ignorance of Cash Advance. Fontano said he signed it, assuming it was true.

As for the affidavit in Kansas where Fontano claimed he was president of Cash Advance? Fontano said he never signed it. He called it a forgery.

iWatch News asked a handwriting expert at Applied Forensics to compare the signature to samples of Fontano’s signature. Dennis Ryan, a former forensic supervisor for the Nassau County Police in New York, concluded “with a reasonable degree of certainty” that Fontano’s signature on the Kansas affidavit was forged.

Ryan also compared the affidavit signature with documents signed by Tucker. Although he couldn’t be certain, Ryan said that Tucker “probably” signed the affidavit. Ryan said he had only 11 samples of Tucker’s signature, too few comparisons under forensic standards to be certain.

The Kansas affidavit was submitted by the same Kansas City law firm that submitted the one in Colorado. Fontano said those attorneys also never told him that he had been subpoenaed and cited for contempt by a Colorado court, which made him upset when he learned the truth.

In June 2006, Tucker’s company sent an email to Fontano: “Please forward any and all records for corporations organized by Mr. Scott Tucker.”

Fontano said that he complied, not knowing that the Colorado Attorney General had issued subpoenas to obtain those same records and that he might be breaking the law. But a search of Fontano’s computer turned up the records, which Fontano gave to the attorney general’s office.

For his cooperation, Fontano was off the hook. The state of Colorado turned its attention to Scott Tucker.

CORRECTION: The payday/tribal connection attributed to Frank Cotton was incorrect in the original story. The correct sentence reads, "Frank Cotton, an industry analyst in Atlanta, estimates at least 30 payday lenders and possibly double that number are affiliated with Indian tribes."