http://www.medhealthinsurance.com/blog/aarp-health-insurance-controversy/
AARP’s Hundreds of Millions in Insurance Royalties
After reading about the scandal of how AARP has been capitalizing off of big insurance at the expense of its members, I now picture money-grubbing people in suits sitting around drinking scotch giggling at their diabolical plan with dollar signs flashing in their eyes. Read on to find out what happened.
Royalties, Fees and a Scandal: Oh My!
Bear with me, because this all might sound a little confusing and convoluted to the untrained insurance eye. It took me a few times of reading it over to fully understand just what happened and how AARP’s insured were effected. In layman’s terms, AARP endorses insurance plans to its members. They claim that these plans will save people more money, when in fact they end up costing more than other plans. Why is this? The companies providing the insurance build hundreds of millions of dollars of royalties and fees into their plans, which get paid to the advocacy group for its endorsement. In other words, because AARP is running around tooting these insurance companies horns’, they get big bucks in fees and royalties for getting people to sign on for these expensive plans.According to the Kaiser article, in 2007, the royalties and fees totaled $497.6 million, or 43% of AARP’s $1.17 billion in revenue, compared with 11% in 1999. In addition, AARP generates income by holding members’ premium payments for up to one month and investing the money before it pays the insurers. AARP seems to be playing the innocent here, saying that the organization’s mission has been compromised by the reliance on these royalties and fees? Hm, you think? Perhaps if AARP hadn’t been so greedy and manipulative in the first place, they wouldn’t find themselves in a situation in which they had to depend on some very dirty sounding money. AARP has also said that they are trying to “do good” but that they have become “very dependent on sources of income.”
Changing their Insurance Tune
Now that AARP has been called into the spotlight about their actions, they announced that they were suspending sales of these insurance policies and would begin rethinking and reviewing their marketing strategies. Obviously, this is good news, but how can a scandal like this be prevented in the first place? This company has created, in my eyes, a serious violation. An organization that is supposed to serve an elderly and retired population should be highly conscious of their image and effort on behalf of their members.I have parents who are members of AARP, and although they have health insurance through other sources, I would be screaming livid if they had been affected by this. It is completely out of integrity, and makes me just as upset if another sensitive demographic (say, people with disabilities) had been taken advantage of. I don’t know what types of legal repercussions can and will happen against AARP, but I can say I’m deeply saddened by yet another example of big business’ corruption and people’s desire for the almighty dollar over the welfare of human beings.
http://www.sec.gov/news/press/2010/2010-88.htm
SEC Charges Pequot Capital Management and CEO Arthur Samberg With Insider Trading
FOR IMMEDIATE RELEASE
2010-88
Washington, D.C., May 27, 2010 — The Securities and Exchange Commission today charged Connecticut-based hedge fund manager Pequot Capital Management, Inc., and its Chairman and CEO Arthur Samberg with insider trading in Microsoft Corporation securities. The SEC separately brought an enforcement action against a former Microsoft employee who later worked at Pequot for allegedly tipping the firm and Samberg with nonpublic information about Microsoft's earnings.Pequot and Samberg agreed to pay nearly $28 million to settle the SEC's charges. The SEC Division of Enforcement's case against the tipper, David Zilkha, will continue in an administrative proceeding before the Commission.
"The cases have two particularly troubling aspects — a hedge fund manager trading on illegal insider information, and his tipper source who withheld crucial information about the scheme during an SEC investigation," said Robert Khuzami, Director of the SEC's Division of Enforcement. "Both are high-priority targets for SEC Enforcement."
The SEC's complaint against Pequot and Samberg, filed in U.S. District Court in Connecticut, alleges that amid rumors in April 2001 that Microsoft would miss its earnings estimates for the quarter that had just ended, Samberg sought information from Zilkha, a Microsoft employee who had just accepted an offer from Samberg to work at Pequot. Zilkha quickly reached out to a Microsoft colleague, who sent him an e-mail stating that the company would meet or beat its earnings estimates for the quarter.
According to the SEC's complaint, Zilkha then conveyed to Samberg his understanding that Microsoft would meet or beat its earnings estimates. Samberg thereafter traded in Microsoft on behalf of funds managed by Pequot. On April 19, after the market had closed, Microsoft announced that it beat its earnings estimates, driving up the price of Microsoft's stock. As a result of the illegal trading by Pequot and Samberg, the Pequot funds made more than $14 million.
Pequot and Samberg agreed to settle the SEC's charges without admitting or denying the SEC's allegations against them. Pequot and Samberg agreed to pay a total of nearly $18 million in disgorgement of trading profits and prejudgment interest as well as $10 million in penalties. With the exception of certain activities aimed solely at winding down Pequot, Samberg also has agreed to be barred from association with an investment adviser.
In the insider trading enforcement action against Zilkha, the SEC Division of Enforcement also alleges that during a prior investigation into his conduct, Zilkha concealed from the SEC staff that he had received inside information about Microsoft's earnings and then recommended that Samberg buy Microsoft securities on the basis of this information. The Enforcement Division alleges that in 2005 and 2006, Zilkha did not produce nor disclose the existence of the e-mail he had received from a Microsoft colleague concerning Microsoft's earnings, despite subpoenas and direct questions that required him to do so.
In January 2009, the SEC staff first received direct evidence that Zilkha had material, nonpublic information about Microsoft — when staff was provided copies of e-mails that had been located on a computer hard drive that was then in the possession of Zilkha's ex-wife.
# # #
For more information about this enforcement action, contact:David P. Bergers
Regional Director, SEC's Boston Regional Office
(617) 573-8927
http://www.observer.com/2010/wall-street/first-new-jersey-then-world-secs-2010-fine-highlights-so-far
First New Jersey, Then the World! The S.E.C.'s 2010 Fine Highlights, So Far
There have been some great hits for the S.E.C. this year, some misses, a record fine and, just this week, another proud moment for New Jersey. In other words, 2010 has been what the Nixon-era S.E.C. chairman William J. Casey would have called an interesting year for financial thumbscrews. "We're here today to talk about enforcement," he said at a conference in the old Biltmore Hotel in 1972. "But what is enforcement anyhow? I looked the word up in the dictionary before I came here and found it defined as 'compulsion or attempted compulsion, especially by physical violence.' Physical violence is remote from our concerns this afternoon. I see nothing on the program dealing with racks, thumbscrews, or the third degree."
Here are some of the commission's recent highlights, by order of appearance:
February - Bank of America's $150 million fine had been a long time coming. In August 2009, the S.E.C. announced a $33 million settlement for claims that the bank had misled its shareholders about $5 billion in Merrill Lynch bonuses. Within a few days, the settlement looked bad. Then it looked awful. Then Judge Jed S. Rakoff officially rejected it, publicly scolding the S.E.C. for going easy. In February, Judge Rakoff accepted a revised $150 million fine, but wasn't thrilled: "This," he grumbled, "is half-baked justice at best."
April - Private equity god Steven Rattner didn't get to settle with the S.E.C. over the hilariously lurid pay-to-play New York pension fund scandal, but his old firm, Quadrangle, did. The firm not only agreed to pay $5 million, but it publicly disavowed its old boss, volunteering that his "conduct was inappropriate, wrong, and unethical."
May - When Pequot Capital and former hedge fund giant Arthur Samburg were fined $28 million, the real lesson, besides not trading on illegal insider information, was to be kind to ex-spouses.
July - After all the fuss and noise, not to mention the rumors that Goldman Sachs would be paying up to $5 billion, Goldman Sachs suddenly settled accusations that it had misled its investors, paying $550 million and admitting no wrongdoing. On the one hand, as the S.E.C. enforcement director Robert Khuzami pointed out a lot, it was the most a financial services firm had ever been fined by the S.E.C. On the other hand, Goldman was giddy. "I'm jumping up and down and telling my dad to buy," said Brad Hintz, the former CFO of Lehman Brothers, who now analyzes Goldman for Sanford C. Bernstein.
July - This got overshadowed by Goldman, so you probably don't remember that Dell, its former executives, and its billionaire founder were fined more than $100 million for padding earnings with sly payments from Intel. They're probably happy it didn't stand out: "We are pleased," mogul Michael Dell said, "to have resolved this matter."
July - To make up for billions of dollars of underreported subprime holdings during the months leading up to the climax of the financial crisis, Citigroup was fined $75 million this summer, and ex-CFO Gary Crittenden had to pay $100,000, slightly edging out former investor relations chief Arthur Tildesley Jr.'s $80,000. "This was not what we call in the law malum per se, bad people trying to do bad things, evil doings," Citi chairman Richard Parsons said afterwards, speaking about executives during the financial crisis. "These are people who got caught up." But Judge Ellen S. Huvelle was not amused. She rejected the deal, asking, among other things, "why the agency charged only two executives with wrongdoing when more senior executives were involved."
August - On Wednesday, the S.E.C. declared that the State of New Jersey had committed securities fraud by misleading investors about the condition of its two biggest pension funds (citing bonds in 79 offerings that added up to $26 billion). On the one hand, it was the S.E.C.'s first-ever fraud case against a state; on the other, New Jersey settled without paying a fine, or admitting or denying the accusations. So life goes on.
http://www.fbi.gov/news/stories/2010/december/fraud_120610/fraud_120610Here are some of the commission's recent highlights, by order of appearance:
February - Bank of America's $150 million fine had been a long time coming. In August 2009, the S.E.C. announced a $33 million settlement for claims that the bank had misled its shareholders about $5 billion in Merrill Lynch bonuses. Within a few days, the settlement looked bad. Then it looked awful. Then Judge Jed S. Rakoff officially rejected it, publicly scolding the S.E.C. for going easy. In February, Judge Rakoff accepted a revised $150 million fine, but wasn't thrilled: "This," he grumbled, "is half-baked justice at best."
April - Private equity god Steven Rattner didn't get to settle with the S.E.C. over the hilariously lurid pay-to-play New York pension fund scandal, but his old firm, Quadrangle, did. The firm not only agreed to pay $5 million, but it publicly disavowed its old boss, volunteering that his "conduct was inappropriate, wrong, and unethical."
May - When Pequot Capital and former hedge fund giant Arthur Samburg were fined $28 million, the real lesson, besides not trading on illegal insider information, was to be kind to ex-spouses.
July - After all the fuss and noise, not to mention the rumors that Goldman Sachs would be paying up to $5 billion, Goldman Sachs suddenly settled accusations that it had misled its investors, paying $550 million and admitting no wrongdoing. On the one hand, as the S.E.C. enforcement director Robert Khuzami pointed out a lot, it was the most a financial services firm had ever been fined by the S.E.C. On the other hand, Goldman was giddy. "I'm jumping up and down and telling my dad to buy," said Brad Hintz, the former CFO of Lehman Brothers, who now analyzes Goldman for Sanford C. Bernstein.
July - This got overshadowed by Goldman, so you probably don't remember that Dell, its former executives, and its billionaire founder were fined more than $100 million for padding earnings with sly payments from Intel. They're probably happy it didn't stand out: "We are pleased," mogul Michael Dell said, "to have resolved this matter."
July - To make up for billions of dollars of underreported subprime holdings during the months leading up to the climax of the financial crisis, Citigroup was fined $75 million this summer, and ex-CFO Gary Crittenden had to pay $100,000, slightly edging out former investor relations chief Arthur Tildesley Jr.'s $80,000. "This was not what we call in the law malum per se, bad people trying to do bad things, evil doings," Citi chairman Richard Parsons said afterwards, speaking about executives during the financial crisis. "These are people who got caught up." But Judge Ellen S. Huvelle was not amused. She rejected the deal, asking, among other things, "why the agency charged only two executives with wrongdoing when more senior executives were involved."
August - On Wednesday, the S.E.C. declared that the State of New Jersey had committed securities fraud by misleading investors about the condition of its two biggest pension funds (citing bonds in 79 offerings that added up to $26 billion). On the one hand, it was the S.E.C.'s first-ever fraud case against a state; on the other, New Jersey settled without paying a fine, or admitting or denying the accusations. So life goes on.
Operation Broken TrustTask force announces conclusion of largest-ever investment fraud sweep in U.S. 
FBI EAD Shawn Henry Operation Broken Trust Historic Investment Fraud Sweep 12/06/10
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Operation Broken Trust Missed “The Big One”
Posted by Larry Doyle on December 8, 2010 7:55 AM | ShareThis
$8 billion is a lot of money, right? Right.
But when is $8 billion NOT a lot of money?
$8 billion is NOT a lot of money when it is compared to $35 billion, $135 billion, or $335 billion. Agreed?
Agreed. Thank you. Let’s continue.
Sense on Cents is a huge proponent of exposing and prosecuting financial fraud wherever it occurs. To this end, I was happy to see that the Feds have had their ‘street cleaners’ operating overtime the last few months. The results of the Fed’s ‘street cleaning’, also known as Operation Broken Trust, is a not insignificant collection of 231 cases totaling $8 billion in losses. Well done. In all sincerity, I commend each and every individual involved in this effort. While those arrested deserve due process, they also deserve to be prosecuted to the fullest extent of the law. If guilty, I hope they receive maximum sentences.
Regrettably, though, the street cleaners missed “The Big One.” Which scam is that? A scam which by any measure could reasonably be described by any of those much larger figures referenced above.
The greatest scam ever perpetrated on Wall Street encompasses the world of auction-rate securities.
Were they dissuaded from even investigating “The Big One”. Really? How so? Let’s navigate the FBI’s release and see how “The Big One” compares to the frauds exposed via this operation.
Today, the Financial Fraud Enforcement Task Force announced the conclusion of Operation Broken Trust, the largest investment fraud sweep ever conducted in the U.S.All good points for any investor assessing any financial product. In regard to ‘The Big One’, the ARS scam touches most if not all these bases. Let’s continue.
The 231 cases in the operation involved more than 120,000 victims who lost more than $8 billion.
Operation Broken Trust—which included both criminal and civil enforcement actions that occurred from August 16 through December 1, 2010—was unveiled during a Washington, D.C. press conference attended by representatives of the agencies that make up the task force, including U.S. Attorney General Eric Holder and FBI Executive Assistant Director Shawn Henry.
The goal of the operation was two-fold:
1. To root out and expose massive investment fraud scams across the nation;
2. To alert the public about many phony investment scams.
Avoiding Investment Fraud
- Be careful of any investment opportunity that makes exaggerated earnings claims, especially during a short period of time.
- Ask for written information about the investment, such as a prospectus, recent quarterly or annual reports, or an offering memorandum.
- Consult an unbiased third party, like an unconnected broker or licensed financial advisor, before investing.
- Don’t be fooled into believing an investment is safe just because someone you know is recommending it. So-called “affinity scams” are one of the favorite methods used to lure people in.
- If you feel you are being pressured into investing, don’t do it.
- Be wary of people you meet on social networking sites and in chat rooms, where investment fraud criminals have been known to troll for victims.
Operation Broken Trust focused on scams directly targeting individual investors, rather than long-term complex corporate fraud matters. In many instances, these criminals were trusted people within their communities—sometimes neighbors, co-workers, fellow church-goers—who betrayed that trust in order to line their own pockets. And the results were often devastating, with some victims losing their life savings, their homes, their livelihoods.Oh yeah!! Most definitely, the ARS victims–often senior citizens living on fixed incomes– have suffered these same consequences.
Each of the cases included in the sweep involved individual investors being deceived by individuals presenting “investment opportunities” that were either completely fictitious or not structured as advertised.BINGO!! ARS could not be more aptly described. Assorted securities regulators and attorneys general have stated as much.
An overwhelming number of the cases were high-yield investment frauds and Ponzi schemes. Others involved commodities fraud, foreign exchange fraud, market manipulation (i.e., “pump-and-dump” schemes”), real estate investment fraud, business opportunity fraud, affinity fraud, and the like.Yes. ARS were very much akin to a glorified Wall Street engineered Ponzi scheme. Market manipulation? Oh yes, that too. Rampant evidence has shown that the auctions were very much manipulated by the Wall Street dealers.
The FBI has observed a steady increase in investment frauds, in particular Ponzi and market manipulation schemes. Since January 2009, we’ve opened more than 200 Ponzi cases, many with $20 million-plus losses. Based on our current caseload, the top five Ponzi scheme hot spots in the country are Los Angeles, New York, Dallas, Salt Lake City, and San Francisco, but keep in mind that these scams can and do happen anywhere.Congratulations!! If the Feds would like to learn more about this ARS scam, and in the spirit of partnership, perhaps they may care to review Sense on Cents/Auction-Rate Securities. Additionally, the Feds may care to call on SEC chair Mary Schapiro.
We’ve had success in shutting down many and arresting those responsible, due in large part to our focus on partnerships—like our involvement in the Financial Fraud Enforcement Task Force—as well as intelligence-gathering and information-sharing efforts. And we continue to use sophisticated investigative techniques—like undercover operations to court-authorized electronic surveillance—to collect evidence in ongoing cases and to identify and stop criminals before they prey on others.
The Feds may like to know that during Mary’s watch at the Financial Industry Regulatory Authority, the internal FINRA investment portfolio actually liquidated $647 million ARS mere months before the ARS market totally froze. Those details–and many more–are included in the above referenced link or also right here, Sense on Cents/FINRA Sold ARS.
“What’s that you say, Mr. Fed? That’s a little too close for comfort?” “But what about the ARS victims?”
What about the victims? The FBI generally offers assistance to victims in fraud cases that fall under our jurisdiction (our partner agencies offer similar services). Our field office victim specialists can provide case status information, direct victims to organizations that can help with protecting or rebuilding credit, assist in documenting victims’ losses, help cope with stress, and even find government or community-based services for victims—especially the elderly and disabled—if their financial losses are severe.Who is doing the same for the ARS victims who continue to hold out hope that their remaining ~$135 Billion (that’s BILLION with a B) will be recovered and repaid?
In cases with hundreds or even thousands of victims, we can provide information using websites and toll-free phone lines.ARS victims remain in the tens of thousands. Who do they call?
Reflecting on the importance of collaboration with our law enforcement and private sector partners in combating investment fraud, Executive Assistant Director Henry said, “Together, we are smarter. Together, we are stronger. Together, we will continue to seek out those who look to profit at the expense of the hard-working men and women of the United States of America.”Great. Clean up all the garbage. Just don’t forget “The Big One.”
Larry Doyle
Please subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook.
I have no affiliation or business interest with any entity referenced in this commentary. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.
6 Responses to “Operation Broken Trust Missed “The Big One””
http://www.senseoncents.com/tag/arps-scandal/Posts Tagged ‘ARPS scandal’
Calling All Auction-Rate Securities Holders
Posted by Larry Doyle on November 15th, 2010 7:15 AM | ShareThisInformation is everything!!
A nation of laws will prosper if and only if the adjudication of disputes is handled in a truly robust fashion. This adjudication process should theoretically lead to the drafting and implementation of new legislation if and when necessary. While industry insiders will often lobby to influence this process both in the courts and in our legislative bodies, America needs real statesmen and true heroes who will champion worthy causes and pursue total truth, real transparency, and unbridled integrity.
The media can play a large role in highlighting and exposing injustices if it cares to perform its duties. Regrettably during our economic crisis of the last few years, the media has often largely shown itself to be as much part of the problem as part of the solution. Why do I write on this topic today? For the very simple reason that tens of thousands of our fellow Americans have largely been disowned and disenfranchised by our nation. Really? Unaccustomed hyperbole, LD? I think not. Let’s navigate further.
I have been an ardent supporter of all those in our nation today who continue to be stuck holding auction-rate securities. These people number in the many tens of thousands and their holdings run upwards of $140 BILLION. Ponder that for a second. How is it that with numbers of this magnitude, the hue and cry of the accompanying injustice is not ringing loudly across our nation. It should. (more…)
A nation of laws will prosper if and only if the adjudication of disputes is handled in a truly robust fashion. This adjudication process should theoretically lead to the drafting and implementation of new legislation if and when necessary. While industry insiders will often lobby to influence this process both in the courts and in our legislative bodies, America needs real statesmen and true heroes who will champion worthy causes and pursue total truth, real transparency, and unbridled integrity.
The media can play a large role in highlighting and exposing injustices if it cares to perform its duties. Regrettably during our economic crisis of the last few years, the media has often largely shown itself to be as much part of the problem as part of the solution. Why do I write on this topic today? For the very simple reason that tens of thousands of our fellow Americans have largely been disowned and disenfranchised by our nation. Really? Unaccustomed hyperbole, LD? I think not. Let’s navigate further.
I have been an ardent supporter of all those in our nation today who continue to be stuck holding auction-rate securities. These people number in the many tens of thousands and their holdings run upwards of $140 BILLION. Ponder that for a second. How is it that with numbers of this magnitude, the hue and cry of the accompanying injustice is not ringing loudly across our nation. It should. (more…)
Tags: ARPS scandal, ARS holding s, ARS scandal, Auction Rate Securities, auction-rates securities scandal, Colorado complaint against E*trade, E*Trade, E*Trade ARS, E*trade auction rate securities, financial regulatory system, FINRA's ownership of Auction Rate Securities, GIM, Greenwich Investment Management, Larry Doyle, Sense on Cents, State of Colorado vs E*Trade
Posted in ARPS, ARS, General | 31 Comments »
http://www.humanevents.com/article.php?id=10731
Mr. Carlisle is the director of policy at the National Legal and Policy Center, a nonprofit foundation dedicated to promoting ethics in public life.
Posted in ARPS, ARS, General | 31 Comments »
http://www.humanevents.com/article.php?id=10731
How the Government Subsidizes AARP
12/08/2005
At the beginning of his second term in 2005, President Bush launched the most ambitious domestic initiative of his presidency: the reform of the financially strapped Social Security program through a system of private retirement accounts.
This much-needed reform was premised on allowing workers to set aside 4 percent of the 12.4 percent Social Security payroll tax for private accounts. In a series of speeches and town halls meetings, President Bush emphasized the impending financial crisis that would hit the program in the not-so-distant future.
AARP Campaigns Against Private Retirement Accounts
Early on, the Bush proposal met fierce resistance from an unusually united Democratic Party and a well-financed network of special interest groups. By far, the group that did the most to defeat the President’s Social Security reform plan was AARP. AARP (formerly known as the American Association of Retired Persons) is the nation’s largest and most powerful organization ostensibly lobbying for the interests of the elderly. With a claimed membership base of 35 million and revenue of $878 million in 2004, AARP certainly had the most resources of any interest group, conservative or liberal, that was involved in the Social Security debate.
Starting in January 2005, AARP sent mass mailings to its members, spent $5 million on full-page advertisements in 50 major newspapers, and another $5 million on print advertising to foment opposition to the Bush reform plan.
AARP charged that diverting payroll taxes to private accounts would bankrupt the system and lead to massive new federal debt. AARP chief executive Bill Novelli even dismissed the need for sweeping changes in Social Security despite the fact that many experts and most Americans believe it is headed for bankruptcy. The group also asserts that investing retirement savings in the stock market is a dangerous gamble that would expose retirees to unacceptable risks. This argument is particularly hypocritical since AARP offers its members the opportunity to buy 38 mutual funds through its corporate partner Scudder Investments. AARP earned $62 million from investment income in 2004.
Mobilizing its full-time staff of 1,800 and a network of 300,000 volunteers, AARP sent activists to dozens of congressional town hall meetings and generated more than 460,000 phone calls to Congress complaining about the private account plan.
AARP won the battle. By the beginning of summer, six months after the White House launched the bold reform initiative with such fanfare, the political and media consensus was that private accounts were going nowhere in Congress.
The defeat of private accounts is perhaps the most dramatic example of AARP’s commitment to liberal activism. But it is hardly the first time. AARP opposed tax cuts in both the Reagan and Bush administrations. In 1991, it worked to defeat the nomination of Clarence Thomas to the U.S. Supreme Court. And in 1995, AARP helped the Clinton Administration defeat Congress’ attempt to pass a balanced budget amendment, and a proposal to control soaring Medicare costs.
AARP Gets Millions in Funding From Federal Grants
AARP stirs considerable anger among conservatives for its aggressive advocacy of liberal causes. Of course, as a private nonprofit organization it has the right to take any stand it chooses on a public policy issue. However, the fact that AARP pursues its political agenda using federal dollars especially angers taxpayers, and not just those who have problems with its politics. The AARP 2004 annual report showed that of the $878 million in revenue AARP received that year $83 million came from the federal government through a variety of grants.
Charlie Jarvis, Chairman and CEO of USA Next, estimates that since 1989, “AARP appears to have taken over a billion dollars in taxpayer money in the form of federal grants.”
It is unacceptable that the federal government is subsidizing a political advocacy organization that annually generates nearly $900 million in revenue, much of it through royalties from corporations, and has total assets of $1.6 billion. Dale Van Atta, a journalist who has investigated AARP’s dubious claims to nonprofit status, says AARP is “really a Fortune 500 company that sidelines as a lobbying organization for the Washington staff.”
Indeed, AARP is a most profitable nonprofit. On more than one occasion in its 47-year history, AARP has been the subject of financial scandal for misusing its nonprofit status to make money. In the 1980s, the Internal Revenue Service demanded hundreds of millions of dollars in back taxes from AARP. After nearly a decade of wrangling, the organization finally paid $135 million.
The source of AARP’s considerable wealth is the dozens of products and services the organization sells to its members. AARP teams up with insurance companies, health care providers, financial services firms, credit card companies, rental car agencies, cell phone providers and other businesses to offer its members discounts. AARP hawks the products to its members and collects “royalties” from its corporate partners. AARP generated 40 percent or $350 million of its revenue from “royalties and Service Provider Relationship Management Fees.” In addition, AARP made $93 million from publications advertising. AARP raises only one-quarter, $224 million, from membership dues.
Five Federal Departments Fund AARP
The $83 million that AARP received from the federal government in 2004 funded a range of activities including job training for low-income senior citizens, assistance in helping seniors file their taxes, programs to prevent Medicare fraud, legal aid, housing assistance, and telemarketing fraud prevention. Some of these programs may be worthwhile. However, an organization as affluent as AARP does not need public money to pursue such charitable missions. Another serious problem is that the federal grant program from which AARP draws most of its public money, the Senior Community Service Employment Program, is often wasteful and inefficient. There are many compelling reasons why the program should be abolished.
AARP administers the federal funds through its charitable arm, the AARP Foundation. AARP is a 501(c)4 and, pursuant to the Lobbying Disclosure Act of 1995, is ineligible to receive federal funds. As a 501(c)3 charity that does not engage in lobbying, the foundation is eligible to receive federal grants. According to its 2003 IRS Form 990, the AARP Foundation had total revenue of $89.6 million, most of which comes from the federal grants.
Five cabinet level agencies dispense grants to AARP. The large majority of the money comes from one Department of Labor grant. For the year ending December 31, 2003 when AARP received $68 million in federal funding, the Labor Department gave AARP $63.3 million for its Senior Community Service Employment Program (SCSEP), a job training program for low-income senior citizens. The second largest federal grantmaker is the IRS. That year, the IRS gave AARP $3.4 million as part of the Tax Counseling for the Elderly (TCE) program, which provides volunteers to help seniors complete their federal taxes. The Department of Housing and Urban Development (HUD) gave $626,279 for its Housing Counseling Assistance Program. The Department of Health and Human Services (HHS) gave $444,493 for various special programs, typically legal assistance and Medicare fraud prevention programs. The Department of Justice (DOJ) gave $15,000 for telemarketing fraud prevention.
The Labor Department’s SCSEP grant for the year beginning in July 2004 and ending in July 2005 was $75 million, which accounts for nearly 90 percent of the $83 million in federal grant money AARP received as of December 31, 2004. The proposed IRS grant for the TCE program in fiscal year 2006 is $4.1 million.
The Senior Community Service Employment Program
The SCSEP is a federal job training program for individuals age 55 and older. It was established in 1965 under Title V of the Older Americans Act. The program is administered by the Labor Department’s Employment and Training Administration through grants to nonprofit organizations and state-level agencies. In 2005, the SCSEP budget was $440 million. Under a longstanding funding formula, 78 percent of SCSEP money is allocated to 13 national nonprofit groups and 22 percent to the states. Thus, the nonprofit groups receive about $342 million. AARP is the second largest recipient. The largest recipient is Experience Works (formerly called Green Thumb) with about $86 million.
These grant recipients place seniors with income that is no more than 100 percent of the poverty line in temporary, part-time, minimum-wage jobs at private nonprofits and public agencies. The SCSEP program pays their salaries. Seniors typically work in schools, hospitals, senior citizens’ centers, and on beautification and conservation projects. The goal is that after a few months of work, the seniors will have acquired the skills to work in similar full-time jobs. AARP says 10,000 people are enrolled in its SCSEP program at any one time. It claims it places more than 50 percent of participants in jobs, exceeding the 20 percent goal set by the Labor Department. Nationally, SCSEP supposedly serves 100,000 people each year.
The objectives of the SCSEP program may be commendable, but there are serious concerns about its effectiveness. The Congressional Budget Office (CBO) has repeatedly recommended that the program could be targeted for elimination since the nonprofit organizations, among the best-funded in the nation, are quite capable of bearing the expenses of running senior training programs.
If AARP is truly committed to its job training program it should pay for it from its own extensive resources.
A 2003 CBO report notes the opinions of critics who “maintain that the SCSEP offers few benefits aside from income support.” Indeed, one wonders how many useful skills can be learned doing part-time work at libraries, parks, schools, and other public facilities. The problem with SCSEP is that there is no independent method for measuring its effectiveness in placing trainees in meaningful, long-term jobs. A 2002 article by the Cato Institute noted that SCSEP “grantees measure their own success in meeting program goals. With millions of government grant dollars at stake, recipients have a built-in incentive to issue consistently positive reports.”
The only way to ascertain performance is through the occasional controversy that manages to get press attention. In March 2001, for instance, members of a West Virginia Senate subcommittee on work force development expressed displeasure over how $986,000 of SCSEP money was being spent by county aging programs. Senator Lloyd Jackson (D) said that the “real purpose” of SCSEP isn’t to train workers but “to subsidize the agencies that are getting these workers.” An SCSEP director admitted that the goal of the program is to place 20 percent of workers in the agencies that hire them. The director also admitted that the placement level was low because “some are not as employable as others.” A participant not employed by one agency is rotated to another. Senator John Unger (D) said the SCSEP program sounded more like welfare than job training.
In 2000, the Minnesota Department of Economic Security did a study evaluating the state’s 80 job training programs. The SCSEP program managed by the National Urban League was one of the least effective. The study found that 77 percent of the people who finished the SCSEP program did not move immediately into jobs. Those who did get jobs were the worst paid. SCSEP graduates made just $5.50 per hour compared with state-administered programs that paid anywhere from $10.80 to $20 per hour.
Not surprisingly, state governments and many in Congress believe that the funding formula for the SCSEP program that guarantees 78 percent of grants to nonprofits should be changed to give states more control. In 1999 and 2000, Congress debated changes to the SCSEP funding formula as part of the reauthorization of the Older Americans Act. Republicans pressed for the formula to be changed to give 55 percent to the nonprofits and 45 percent to the states. Of course, AARP and the other groups opposed the change, insisting the current system worked just fine.
Democratic congressmen and the Clinton administration strongly opposed the measure. Defenders of the status quo argued the nonprofits outperformed the states. But grant recipients evaluated their own performance and there was no independent review by the Labor Department. However, the General Accounting Office (GAO) reviewed SCSEP -- and it supported a revision in funding to give the states more money and AARP less.
In 1999 congressional testimony, GAO official Marnie Shaul said the 78-22 formula results “in distributions of funds among and within states that do not match the distribution of the needy population.” Shaul said that this restricts the Labor Department’s “ability to allocate funds among the states in a way that ensures that funds are provided to the states where the most needy elderly reside. A majority of funds are not responsive to population changes.”
Despite the GAO’s conclusions, the GOP congressional proposal to increase the state allocation to 45 percent was defeated. President Clinton signed the reauthorization of the Older Americans Act into law without any substantive reforms. This was good for AARP but not good for an effective senior job training program.
Taxpayers Should Be Outraged
It is outrageous that taxpayers are being used to advance AARP’s liberal agenda to expand government and thwart Social Security reform. Even though AARP routinely generates nearly $900 million annually, it receives more than $80 million in federal funding each year and, cumulatively, has probably received more than $1 billion over the last 16 years. The time is long overdue to cut off federal subsidies to AARP and end the unjust practice of publicly funding a highly partisan and controversial interest group.
This much-needed reform was premised on allowing workers to set aside 4 percent of the 12.4 percent Social Security payroll tax for private accounts. In a series of speeches and town halls meetings, President Bush emphasized the impending financial crisis that would hit the program in the not-so-distant future.
AARP Campaigns Against Private Retirement Accounts
Early on, the Bush proposal met fierce resistance from an unusually united Democratic Party and a well-financed network of special interest groups. By far, the group that did the most to defeat the President’s Social Security reform plan was AARP. AARP (formerly known as the American Association of Retired Persons) is the nation’s largest and most powerful organization ostensibly lobbying for the interests of the elderly. With a claimed membership base of 35 million and revenue of $878 million in 2004, AARP certainly had the most resources of any interest group, conservative or liberal, that was involved in the Social Security debate.
Starting in January 2005, AARP sent mass mailings to its members, spent $5 million on full-page advertisements in 50 major newspapers, and another $5 million on print advertising to foment opposition to the Bush reform plan.
AARP charged that diverting payroll taxes to private accounts would bankrupt the system and lead to massive new federal debt. AARP chief executive Bill Novelli even dismissed the need for sweeping changes in Social Security despite the fact that many experts and most Americans believe it is headed for bankruptcy. The group also asserts that investing retirement savings in the stock market is a dangerous gamble that would expose retirees to unacceptable risks. This argument is particularly hypocritical since AARP offers its members the opportunity to buy 38 mutual funds through its corporate partner Scudder Investments. AARP earned $62 million from investment income in 2004.
Mobilizing its full-time staff of 1,800 and a network of 300,000 volunteers, AARP sent activists to dozens of congressional town hall meetings and generated more than 460,000 phone calls to Congress complaining about the private account plan.
AARP won the battle. By the beginning of summer, six months after the White House launched the bold reform initiative with such fanfare, the political and media consensus was that private accounts were going nowhere in Congress.
The defeat of private accounts is perhaps the most dramatic example of AARP’s commitment to liberal activism. But it is hardly the first time. AARP opposed tax cuts in both the Reagan and Bush administrations. In 1991, it worked to defeat the nomination of Clarence Thomas to the U.S. Supreme Court. And in 1995, AARP helped the Clinton Administration defeat Congress’ attempt to pass a balanced budget amendment, and a proposal to control soaring Medicare costs.
AARP Gets Millions in Funding From Federal Grants
AARP stirs considerable anger among conservatives for its aggressive advocacy of liberal causes. Of course, as a private nonprofit organization it has the right to take any stand it chooses on a public policy issue. However, the fact that AARP pursues its political agenda using federal dollars especially angers taxpayers, and not just those who have problems with its politics. The AARP 2004 annual report showed that of the $878 million in revenue AARP received that year $83 million came from the federal government through a variety of grants.
Charlie Jarvis, Chairman and CEO of USA Next, estimates that since 1989, “AARP appears to have taken over a billion dollars in taxpayer money in the form of federal grants.”
It is unacceptable that the federal government is subsidizing a political advocacy organization that annually generates nearly $900 million in revenue, much of it through royalties from corporations, and has total assets of $1.6 billion. Dale Van Atta, a journalist who has investigated AARP’s dubious claims to nonprofit status, says AARP is “really a Fortune 500 company that sidelines as a lobbying organization for the Washington staff.”
Indeed, AARP is a most profitable nonprofit. On more than one occasion in its 47-year history, AARP has been the subject of financial scandal for misusing its nonprofit status to make money. In the 1980s, the Internal Revenue Service demanded hundreds of millions of dollars in back taxes from AARP. After nearly a decade of wrangling, the organization finally paid $135 million.
The source of AARP’s considerable wealth is the dozens of products and services the organization sells to its members. AARP teams up with insurance companies, health care providers, financial services firms, credit card companies, rental car agencies, cell phone providers and other businesses to offer its members discounts. AARP hawks the products to its members and collects “royalties” from its corporate partners. AARP generated 40 percent or $350 million of its revenue from “royalties and Service Provider Relationship Management Fees.” In addition, AARP made $93 million from publications advertising. AARP raises only one-quarter, $224 million, from membership dues.
Five Federal Departments Fund AARP
The $83 million that AARP received from the federal government in 2004 funded a range of activities including job training for low-income senior citizens, assistance in helping seniors file their taxes, programs to prevent Medicare fraud, legal aid, housing assistance, and telemarketing fraud prevention. Some of these programs may be worthwhile. However, an organization as affluent as AARP does not need public money to pursue such charitable missions. Another serious problem is that the federal grant program from which AARP draws most of its public money, the Senior Community Service Employment Program, is often wasteful and inefficient. There are many compelling reasons why the program should be abolished.
AARP administers the federal funds through its charitable arm, the AARP Foundation. AARP is a 501(c)4 and, pursuant to the Lobbying Disclosure Act of 1995, is ineligible to receive federal funds. As a 501(c)3 charity that does not engage in lobbying, the foundation is eligible to receive federal grants. According to its 2003 IRS Form 990, the AARP Foundation had total revenue of $89.6 million, most of which comes from the federal grants.
Five cabinet level agencies dispense grants to AARP. The large majority of the money comes from one Department of Labor grant. For the year ending December 31, 2003 when AARP received $68 million in federal funding, the Labor Department gave AARP $63.3 million for its Senior Community Service Employment Program (SCSEP), a job training program for low-income senior citizens. The second largest federal grantmaker is the IRS. That year, the IRS gave AARP $3.4 million as part of the Tax Counseling for the Elderly (TCE) program, which provides volunteers to help seniors complete their federal taxes. The Department of Housing and Urban Development (HUD) gave $626,279 for its Housing Counseling Assistance Program. The Department of Health and Human Services (HHS) gave $444,493 for various special programs, typically legal assistance and Medicare fraud prevention programs. The Department of Justice (DOJ) gave $15,000 for telemarketing fraud prevention.
The Labor Department’s SCSEP grant for the year beginning in July 2004 and ending in July 2005 was $75 million, which accounts for nearly 90 percent of the $83 million in federal grant money AARP received as of December 31, 2004. The proposed IRS grant for the TCE program in fiscal year 2006 is $4.1 million.
The Senior Community Service Employment Program
The SCSEP is a federal job training program for individuals age 55 and older. It was established in 1965 under Title V of the Older Americans Act. The program is administered by the Labor Department’s Employment and Training Administration through grants to nonprofit organizations and state-level agencies. In 2005, the SCSEP budget was $440 million. Under a longstanding funding formula, 78 percent of SCSEP money is allocated to 13 national nonprofit groups and 22 percent to the states. Thus, the nonprofit groups receive about $342 million. AARP is the second largest recipient. The largest recipient is Experience Works (formerly called Green Thumb) with about $86 million.
These grant recipients place seniors with income that is no more than 100 percent of the poverty line in temporary, part-time, minimum-wage jobs at private nonprofits and public agencies. The SCSEP program pays their salaries. Seniors typically work in schools, hospitals, senior citizens’ centers, and on beautification and conservation projects. The goal is that after a few months of work, the seniors will have acquired the skills to work in similar full-time jobs. AARP says 10,000 people are enrolled in its SCSEP program at any one time. It claims it places more than 50 percent of participants in jobs, exceeding the 20 percent goal set by the Labor Department. Nationally, SCSEP supposedly serves 100,000 people each year.
The objectives of the SCSEP program may be commendable, but there are serious concerns about its effectiveness. The Congressional Budget Office (CBO) has repeatedly recommended that the program could be targeted for elimination since the nonprofit organizations, among the best-funded in the nation, are quite capable of bearing the expenses of running senior training programs.
If AARP is truly committed to its job training program it should pay for it from its own extensive resources.
A 2003 CBO report notes the opinions of critics who “maintain that the SCSEP offers few benefits aside from income support.” Indeed, one wonders how many useful skills can be learned doing part-time work at libraries, parks, schools, and other public facilities. The problem with SCSEP is that there is no independent method for measuring its effectiveness in placing trainees in meaningful, long-term jobs. A 2002 article by the Cato Institute noted that SCSEP “grantees measure their own success in meeting program goals. With millions of government grant dollars at stake, recipients have a built-in incentive to issue consistently positive reports.”
The only way to ascertain performance is through the occasional controversy that manages to get press attention. In March 2001, for instance, members of a West Virginia Senate subcommittee on work force development expressed displeasure over how $986,000 of SCSEP money was being spent by county aging programs. Senator Lloyd Jackson (D) said that the “real purpose” of SCSEP isn’t to train workers but “to subsidize the agencies that are getting these workers.” An SCSEP director admitted that the goal of the program is to place 20 percent of workers in the agencies that hire them. The director also admitted that the placement level was low because “some are not as employable as others.” A participant not employed by one agency is rotated to another. Senator John Unger (D) said the SCSEP program sounded more like welfare than job training.
In 2000, the Minnesota Department of Economic Security did a study evaluating the state’s 80 job training programs. The SCSEP program managed by the National Urban League was one of the least effective. The study found that 77 percent of the people who finished the SCSEP program did not move immediately into jobs. Those who did get jobs were the worst paid. SCSEP graduates made just $5.50 per hour compared with state-administered programs that paid anywhere from $10.80 to $20 per hour.
Not surprisingly, state governments and many in Congress believe that the funding formula for the SCSEP program that guarantees 78 percent of grants to nonprofits should be changed to give states more control. In 1999 and 2000, Congress debated changes to the SCSEP funding formula as part of the reauthorization of the Older Americans Act. Republicans pressed for the formula to be changed to give 55 percent to the nonprofits and 45 percent to the states. Of course, AARP and the other groups opposed the change, insisting the current system worked just fine.
Democratic congressmen and the Clinton administration strongly opposed the measure. Defenders of the status quo argued the nonprofits outperformed the states. But grant recipients evaluated their own performance and there was no independent review by the Labor Department. However, the General Accounting Office (GAO) reviewed SCSEP -- and it supported a revision in funding to give the states more money and AARP less.
In 1999 congressional testimony, GAO official Marnie Shaul said the 78-22 formula results “in distributions of funds among and within states that do not match the distribution of the needy population.” Shaul said that this restricts the Labor Department’s “ability to allocate funds among the states in a way that ensures that funds are provided to the states where the most needy elderly reside. A majority of funds are not responsive to population changes.”
Despite the GAO’s conclusions, the GOP congressional proposal to increase the state allocation to 45 percent was defeated. President Clinton signed the reauthorization of the Older Americans Act into law without any substantive reforms. This was good for AARP but not good for an effective senior job training program.
Taxpayers Should Be Outraged
It is outrageous that taxpayers are being used to advance AARP’s liberal agenda to expand government and thwart Social Security reform. Even though AARP routinely generates nearly $900 million annually, it receives more than $80 million in federal funding each year and, cumulatively, has probably received more than $1 billion over the last 16 years. The time is long overdue to cut off federal subsidies to AARP and end the unjust practice of publicly funding a highly partisan and controversial interest group.
Mr. Carlisle is the director of policy at the National Legal and Policy Center, a nonprofit foundation dedicated to promoting ethics in public life.
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