The Project On Government Oversight (POGO) Blog

LANL Researchers Blow Up Building with Civil War-like Cannon

Nope, that's not a headline from The Onion. POGO has just learned that researchers at the Los Alamos National Laboratory accidentally blew a building apart a few weeks ago with a massive gun that acts like a Civil War cannon. From our press release:

According to a Los Alamos National Laboratory (LANL) Occurrence Report, "Shock and Detonation Physics Group researchers heard a loud unusual noise from Technical Area 15, Building 562 after firing a shot from a large-bore powder gun (LBPG)." The researchers accidentally blew a building apart at Technical Area-15, on December 16, 2009 while testing a gun which acts like a Civil War cannon.

While no one was hurt, sources advise POGO that there was over $3 million in damage to property. The explosion blew the doors off the building -- which is described in the report as, "two doors were propelled off the facility."

The Facility Operations Director "declared a management concern due to the significant facility structural damage incurred resultant of the shot." Parts of the cannon were found outside the building.

"I must say that this is a new twist in the long history of screw-ups by Los Alamos," said POGO's Senior Investigator, Peter Stockton. “I have no idea in the world why they have a gun like this, let alone testing it.”

To learn more about this long history of screw-ups, check out POGO's LANL investigations. Of course, our past investigations have been concerned about security threats to the nuclear labs coming from outsiders.

-- Peter Stockton

A Video Message from Danielle

As Danielle says, it's been one heck of a year over here at POGO.  We covered a lot of ground and are proud of our accomplishments, but we wouldn't have been able to make it without you.

Thank you for reading, for commenting, for forwarding, for retweeting, for calling your Congressman, for providing insights, encouragement and critiques; for responding to surveys, for participating in seminars, for attending screenings, and for your interest.

In case you were wondering, POGO does indeed rely on individuals like you for funding -- we don't accept contributions from the government, from corporations, or from anyone with a financial interest in our investigations.  So if what we do around here resonates with you, please consider donating. Even a small donation can go a long way in our fight to expose government waste, fraud, and abuse, and find solutions to build a better government for all of us.

-- Bryan Rahija

Morning Smoke: Obama Signs Defense Appropriations Bill Into Law

Spending Bill Becomes Law [Air Force Magazine]

Classified Bomber Under Consideration [Aviation Week]

Oshkosh FMTV Bid 'Unbelievable [DoD Buzz]

New Executive Order Awaits Presidential Decision [Secrecy News]

Washington to Reduce Funding for U.S. Contractors in Pakistan [ProPublica]

Doctors' Spat Exposes FDA Loophole [The Wall Street Journal]

OMB Releases New Last-Minute Recovery Act Jobs Guidance [OMB Watch]

AIG executives' promises to return bonuses have gone largely unfulfilled [The Washington Post]

Stimulus Money Paid Out Now Exceeds Money in the Pipeline [ProPublica]

Morning Smoke: More Tales of Moneyed Military Mentors

Military mentors hired, fired in discreet fashion [Federal Times]

Defense Bill Earmarks Total $4 Billion [The Wall Street Journal]

Inadequate Oversight Cited in Weatherization Program [The New York Times]

White House seeks input on federal research info sharing program [Federal Computer Week]

Blackwater, Already On The Ground In Afghanistan, Now Gunning For More Contracts [TPMMuckraker]

Advisers on Vaccines Often Have Conflicts, Report Says [The New York Times]

California Courts to Whistleblower: 'You're Out of Order!'

Accountable California, a project of SEIU Local 721's Center for Public Accountability, has posted a story about Michael Paul, an employee of the California Administrative Office of the Courts. Paul thought he saw misconduct occurring on multimillion dollar contracts and reported it to his superiors. In return, he was “effectively” demoted to a job working under the same people on whom he blew the whistle. 

The California court system is the largest in the nation, with more than 2,000 judicial officers, 19,000 court employees, and hundreds of courthouses. Paul alleges that private vendors who provide maintenance services at the courthouses were operating without the required licenses and were overcharging for services. When he reported his concerns to superiors, however, he claims he was reassigned to "an irrelevant position with nothing to do" that reports to "the same guys I blew the whistle on."

POGO is highlighting Michael Paul’s case not only because of the whistleblower retaliation element, but also because one of the vendors involved is a subsidiary of Jacobs Engineering Group, a company featured in our Federal Contractor Misconduct Database. A quick glance at the database reveals that Jacobs only has two misconduct instances, both of which are almost a decade old. Both also happen to involve government contract fraud. Paul claims Jacobs was paid $20,000 for a building maintenance study it plagiarized from an old U.S. Army Corps of Engineers study and that it overcharged the state on many projects. 

The Administrative Office of the Courts acted on Paul's information and has sued several of the vendors for not having licenses but has not yet acted on any of his more serious fraud allegations. The lawsuit alleges Jacobs had the required contractor's license when it began work in 2006 but let it lapse a year ago. The lawsuit seeks repayment of all state funds. 

The latest information about Michael Paul’s situation and the state’s lawsuits against the courthouse vendors can be found on this blog. 

-- Neil Gordon

Pressure Mounts on Obama's NRC Pick

We were pleased to see William Lynn and William Magwood featured on the list of five of “Obama’s Worst Nominees,” in Mother Jones’ January/February 2010 issue. While we have nothing against these men personally, we welcome scrutiny of Obama’s decisions to choose them over numerous other potentials picks, who do not have a financial interest in the areas they are tasked to regulate and oversee.

While the Senate Armed Services Committee did confirm Lynn as Deputy Secretary of Defense almost one year ago, the Senate Committee on Environment and Public Works will not hold its confirmation hearing for Magwood as a Commissioner to the Nuclear Regulatory Commission (NRC) until January or February 2010. Thus, there is still time for Obama pick a nominee with a strong background in nuclear security. Magwood is particularly unqualified to serve as a regulator of nuclear power, as his background has been in the promotion of nuclear power, and given his recent efforts as a consultant to foreign governments interested in investing in nuclear power expansion in the U.S.

-- Ingrid Drake

Not a TRACE of Transparency for Troubled Assets

POGO sent a letter to Securities and Exchange Commission (SEC) Chairman Mary Schapiro on Friday raising concerns that a proposed rule for increasing price transparency in the market for troubled assets has been undermined by significant loopholes.  

POGO’s letter describes how the proposed rule, which was issued in October by the Financial Industry Regulatory Association (FINRA), contains provisions that will indefinitely delay transparency in these markets, and will prevent the dissemination of key information to the public. POGO believes that the inclusion of these loopholes reflects the pervasive influence of the securities industry, and exemplifies the kind of watered down rulemaking we’ve come to expect from FINRA and other industry-friendly self-regulatory organizations (SROs). 

FINRA’s proposed rule would require its members to submit information on transactions in certain types of troubled assets—such as mortgage- and asset-backed securities—to a centralized reporting system known as the Trade Reporting and Compliance Engine (TRACE). But if the SEC accepts the rule as it’s currently written, this information won’t have to be reported until the end of the day—as opposed to the usual 15-minute timeframe—and won’t have to be disseminated to the public. These restrictions could potentially have far-reaching consequences: according to one recent estimate, the total outstanding debt in mortgage-related and asset-backed securities is worth over $11 trillion—nearly one-third of all outstanding debt in the U.S. bond market.

As highlighted in an August report by the Congressional Oversight Panel, when the original credit risk assumptions for these assets came into question due to the rise in residential mortgage defaults, it led to a dramatic freeze in the markets for mortgage- and asset-backed securities, and as a result, the usual price-discovery mechanisms for these securities became frozen as well. Since the financial meltdown last fall, many of the government’s bailout programs have been aimed at strengthening the price-discovery mechanisms for troubled assets. 

The TRACE system could potentially have a huge impact on price transparency for mortgage- and asset-backed securities if the loopholes in FINRA’s proposed rule are removed. In fact, the TRACE reporting system has been improving transparency in other types of assets for nearly a decade. 

In 1998, under pressure from Congress and buy-side traders to improve price transparency, the SEC asked FINRA’s predecessor—the National Association of Securities Dealers (NASD)—to create a database for the reporting of transactions in the corporate bond market. In response to this mandate, NASD proposed a rule that led to the creation of TRACE, but the rule only required reporting on transactions in corporate bonds. The following types of securities were exempt from the reporting requirement: “debt issued by government-sponsored entities, mortgage- or asset-backed securities, collateralized mortgage obligations, and money market instruments.” 

In the aftermath of the financial crisis last fall, many experts highlighted the need for more transparency and price disclosure for the types of securities that were originally exempt from TRACE reporting. In its white paper on financial regulatory reform, the Treasury Department wrote that “the SEC and the Financial Industry Regulatory Authority (FINRA) should expand the Trade Reporting and Compliance Engine (TRACE), the standard electronic trade reporting database for corporate bonds, to include asset-backed securities.” 

But when it came time to write the rule, FINRA added loopholes that will undermine price transparency and prevent the public dissemination of key information about these securities. Under the current TRACE rules, FINRA members are required to report transactions to TRACE within 15 minutes of the transaction, and transaction information for most TRACE-eligible securities is immediately disseminated to the public. While FINRA’s proposed rule would bring mortgage- and asset-backed securities under the TRACE reporting system, it wouldn’t require reporting until the end of the day, and information on these transactions would not be disseminated to the public. Future dissemination would only be possible in limited circumstances pending an indefinite review by FINRA. 

Participants and institutional investors have told POGO that FINRA’s restrictions would completely undermine the purported intent of this rule, which is to increase price transparency for the troubled assets that fueled the financial meltdown. The restrictions are being supported by securities industry lobbying organizations like the Securities Industry and Financial Markets Association (SIFMA), which has been described by the Center for Responsive Politics as “one of the industry’s most vocal trade groups.” The securities industry wants to stop these transparency reforms since it makes money from the “bid-ask spread”—the difference in price between what the buyer and seller are offering. Less transparency means a higher bid-ask spread, which means more profit for the securities industry. 

In addition, SIFMA has enjoyed a particularly cozy relationship with FINRA. As Chairman Schapiro described it when she was CEO of FINRA, a white paper written by SIFMA’s predecessor “was one of the sparks that helped light the fuse” that ultimately led to FINRA’s creation. And one of FINRA’s Board members, Richard Brueckner, also serves on SIFMA’s Board. 

SIFMA argues that requirements for 15-minute reporting and public dissemination will “act to hamper a return to normal market conditions, thus acting counter to government's efforts to safeguard financial stability and restore the provision of credit and lending to the economy.” But at a 2007 conference, when a SIFMA executive was asked if he had any data to support this argument, he could only point to a survey which showed that 15 other institutional investors shared his view. On the other hand, a study conducted by Professor Kumar Venkataraman found that the effects of TRACE on the corporate bond market led to a dramatic decrease in trading costs. Professor Venkataraman also explained to the conference attendees that increased transparency gives investors a better tool for valuing securities, improves investor confidence, and can help give regulators early indications of fundamental credit problems. 

POGO is urging the SEC to amend FINRA’s rule so that transactions in asset- and mortgage-backed securities are reported to TRACE within the standard 15-minute timeframe, and information on these transactions is immediately disseminated to the public. There’s simply no reason to delay any longer in bringing these much-needed transparency reforms to the troubled assets market.

-- Michael Smallberg

Morning Smoke: Agencies Halfway to Goal for Cutting Contracting Costs

Contracting cost cuts on target, OMB says [The Washington Post]

Show Us the E-Mail [The New York Times]

Delays, costs threaten fighter-plane program [The Washington Times]

Citigroup ‘Lottery Ticket’ Warrants May Pay U.S. Lowest Return [Bloomberg]

Senators introduce bills to boost acquisition workforce roles, training [Nextgov]

DHS tightens oversight over grants [Federal Times]

White House Seeks Public Input on Open Government Metrics

Hot off the heels of the announcement of the Open Government Directive, a memo released last week to move the executive branch towards a culture of openness, the White House is now seeking public input on open government metrics and on its new draft plans for data.gov.

If you've got ideas for ways to improve data.gov or help hold agencies accountable for their open government commitments, we would encourage you to chime in.

And while we're at it, if anyone is looking for suggestions as to which high-value data sets should be released before the upcoming 45-day deadline, look no further than here.

• Join the discussion on open government metrics.
• Join the discussion on the new draft plans for data.gov.

-- Bryan Rahija

Morning Smoke: Senate Passes Defense Spending Bill, Includes $626 Billion to Pentagon

Defense spending bill passes Senate, 63-33 [Navy Times]

Skies darken for Ben Bernanke nomination [Politico]

McCaskill calls for increased oversight of contract work in Afghanistan [The Washington Post]

Discord Behind TARP Exits [The Wall Street Journal]

Not Just Drones: Militants Can Snoop on Most U.S. Warplanes (Updated) [Danger Room]

Defense and State brace for surge in Afghanistan contracting [Government Executive]

Kucinich panel to investigate Citigroup tax ruling [The Washington Post]

The surprising reason why banks are suddenly repaying their TARP funds [Slate Magazine]

Finra Probes Wall Street's Trade Huddles [The Wall Street Journal]

GAO Details Army FMTV Fail [DoD Buzz]

SEC Slow to Implement IG Recommendations Despite Ample Room for Improvement

POGO has discovered that the Securities and Exchange Commission (SEC) has failed to implement over 200  — or roughly 60 percent — of the Office of Inspector General's (OIG) audit and investigative recommendations over the last two years.

This finding comes after numerous deficiencies in the SEC's enforcement and investigative practices were brought to light in the aftermath of the Bernie Madoff scandal.  As Danielle Brian said in a statement today, "for an agency that’s recovering from the worst failure in its history, the SEC’s decision to ignore so many of the Inspector General’s recommendations is simply astonishing."

Earlier today, POGO sent a letter to SEC Chairman Mary Schapiro urging her to pick up the pace and address the unimplemented recommendations. From the letter:

"It is simply unacceptable for a federal agency to ignore so many of the findings and recommendations made by its OIG. Based on the SEC's poor track record as revealed in these documents, the public has every reason to question the agency's commitment to implementing the sorely needed post-Madoff reforms. We urge you to make the OIG's recommendations a top priority for the agency moving forward."

Evidence of the SEC's foot-dragging was found in two documents obtained by POGO through a Freedom Of Information Act request.  You can find out more here:

• POGO's letter to Chairman Schapiro
• Recommendations made in SEC OIG reports of investigation since December 2007
• Recommendations made in SEC OIG audits since December 2007

-- Bryan Rahija

New Podcast Posted: Urging the Pentagon to Reduce Conflicts of Interest

Late last week, POGO's Mandy Smithberger and Keith Rutter sat down to discuss our latest efforts to reduce conflicts of interest in Pentagon programs. The discussion clocks in at a cool 5:13 and you may listen here.

-- Bryan Rahija