Facebook’s own words are the ‘ultimate definition of fraud,’ says Ohio attorney general

Alexis Keenan
·Reporter
Tue, November 16, 2021

A lawsuit alleging securities law violations, filed against Facebook's parent company Meta (FB) by Ohio’s largest pension fund, should be an easy one to prove, according to the state’s attorney general.

On Monday, Attorney General Dave Yost along with Ohio’s Public Employee Retirement System filed suit in federal district court in California, alleging that earlier in the year Facebook and its senior executives made false and misleading statements that artificially inflated its share prices.

“I don't think causation's going to be a terribly difficult thing to prove here,” Yost told Yahoo Finance Live, referencing a 2019 internal Facebook review the Wall Street Journal reported on earlier this year.

That internal review took issue with a Facebook policy that gave special treatment to the accounts of popular users like politicians and celebrities, allowing them to violate the platform's rules without repercussions. The review, marked attorney-client privileged, called the actions "a breach of trust."

“We are not actually doing what we say we do publicly,” said the confidential review, according to The Wall Street Journal. “Unlike the rest of our community, these people can violate our standards without any consequences.”

The Ohio attorney general suggested those words could be used against Facebook. “Facebook in its own internal review said we're not doing the things that we're saying we're doing publicly," he said. "And that's the ultimate definition I think of fraud: saying one thing and doing the other."

Facebook CEO Mark Zuckerberg testifies during a remote video hearing held by subcommittees of the U.S. House of Representatives Energy and Commerce Committee on "Social Media's Role in Promoting Extremism and Misinformation" in Washington, U.S., March 25, 2021. U.S. House of Representatives Energy and Commerce Committee/Handout via ReutersMore

According to the complaint, Facebook's stock dropped as a result of disclosures by former Facebook employee turned whistleblower, Frances Haugen, and a series of reports published by The Wall Street Journal. The disclosures and reports, together, the complaint says, paint a picture that Facebook was aware of but failed to disclose the extent of problems on its platforms concerning illegal activity, violent extremism, and harm to children.

“All told, these disclosures erased more than $100 billion in shareholder value and subjected Facebook to immense reputational harm,” according to the complaint, which seeks class action status.

The pension fund alone lost $4.3 million due to the disclosures, the lawsuit said. Those figures are based on the lawsuit's claim that losses should be measured from April 28 — when CEO Mark Zuckerberg allegedly made false or misleading statements during an earnings call — to Oct. 21 when the Wall Street Journal reported that 11% of Facebook's monthly active users worldwide come from duplicate accounts.

According to the allegations, when an analyst asked on the April earnings call about a practice that could increase the amount of controversial content pushed to users’ News Feeds, Zuckerberg downplayed the concern.

Meta’s spokesperson responded to the lawsuit in an email to Yahoo Finance, saying "This suit is without merit and we will defend ourselves vigorously.”

Under federal securities law, the lawsuit must show that Facebook or its executives intentionally lied at least once, or knowingly made one omission. The suit also has to show that the plaintiffs relied on these false statements or omissions when buying Facebook shares, and that false statements caused those shares to lose value.

The lawsuit is one of multiple suits against Facebook arising out of the Haugen disclosures and alleging federal securities law violations for failing to disclose internal research about its platforms.

Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.

Employees and investors are calling for Activision's CEO to resign amid reports that he knew for years about sexual harassment and rape allegations at the company

Ben Gilbert
Fri, November 19, 2021

Activision CEO Bobby Kotick.

Activision CEO Bobby Kotick knew for years about claims of sexual misconduct at his company, the WSJ reported.

More than 1,000 Activision employees have since signed a petition calling for Kotick to resign.

Xbox head Phil Spencer said Microsoft is "evaluating" its relationship with the "Call of Duty" publisher.

Activision's longtime CEO Bobby Kotick reportedly knew for years about a variety of claims of sexual harassment and rape at his company.

A huge new investigation by the Wall Street Journal details several specific examples of harassment and rape at Activision. Kotick was not only aware of those claims but, in a least one instance, reportedly intervened to keep a male staffer who was accused of sexual harassment despite the company's human resources department recommending he be fired.

In the wake of the report, more than 1,000 current Activision Blizzard employees have signed a letter calling on Kotick to resign.

"We, the undersigned, no longer have confidence in the leadership of Bobby Kotick as the CEO of Activision Blizzard," the letter says. "The information that has come to light about his behaviors and practices in the running of our companies runs counter to the culture and integrity we require of our leadership — and directly conflicts with the initiatives started by our peers. We ask that Bobby Kotick remove himself as CEO of Activision Blizzard, and that shareholders be allowed to select the new CEO without the input of Bobby, who we are aware owns a substantial portion of the voting rights of the shareholders."

And Activision employees aren't alone in calling on Kotick to resign — a group of Activision investors, albeit a small percentage of overall investors, are echoing the sentiment.

"It's clear that the current leadership repeatedly failed to uphold a safe workplace — a basic function of their job," Strategic Organizing Center (SOC) Investment Group director Dieter Waizenegger told The Washington Post this week. "Activision Blizzard needs a new CEO, board chair and lead independent director with the expertise, skill set and conviction to truly change the company's culture," he said.

Additionally, the heads of both Sony's PlayStation and Microsoft's Xbox issued statements internally.

PlayStation head Jim Ryan criticized Activision's response to the article. "We do not believe their statements of response properly address the situation," he said in an email obtained by Bloomberg.

Xbox leader Phil Spencer took his response one step further: Xbox is "evaluating all aspects of our relationship with Activision Blizzard and making ongoing proactive adjustments," the email from Spencer to staff, also obtained by Bloomberg, said.

Microsoft confirmed the email's veracity to Insider, and shared the following statement from Spencer: "I personally have strong values for a welcoming and inclusive environment for all of our employees at Xbox. This is not a destination but a journey that we will always be on. The leadership at Xbox and Microsoft stand by our teams and support them in building a safer environment for all."

When asked for comment regarding calls for Kotick to resign, Activision representatives pointed to the statement published by Activision's board earlier this week and said the sentiment stands: "The Board remains confident that Bobby Kotick appropriately addressed workplace issues brought to his attention," the statement said.

The Journal's report on Activision is the latest in an ongoing reckoning at the blockbuster video game publisher.

The State of California sued the company this summer over allegations that female Activision employees face "constant sexual harassment," from "having to continually fend off unwanted sexual comments" to "being groped." When employees report issues to human resources and management, the lawsuit claimed, no action is taken.

The suit — filed on July 20 to the Los Angeles Supreme Court — followed a two-year investigation conducted by California's Department of Fair Employment and Housing. It claims "Call of Duty" maker Activision fosters a "pervasive frat boy" culture where women are paid less for the same jobs that men perform, regularly face sexual harassment, and are targeted for reporting issues.

Activision Blizzard CEO's duty to disclose sexual misconduct claims falls into legal 'gray area,' expert says

Alexis Keenan
·Reporter
Sat, November 20, 2021

Bobby Kotick, chief executive officer of Activision Blizzard, attends the annual Allen & Company Sun Valley Conference, July 10, 2019 in Sun Valley, Idaho. (Photo by Drew Angerer/Getty Images)

On Wednesday, a group of Activision Blizzard (ATVI) shareholders joined a chorus seeking to oust longtime CEO Bobby Kotick after The Wall Street Journal reported that he knew of sexual harassment and rape claims at the gaming giant but failed to report some of them to the board.

The outcry has raised questions about Kotick's duty to disclose what he knew about sexual misconduct allegations within the video gaming company. Frustrations over the matter have been escalating since August when California's Department of Fair Employment and Housing sued Activision, alleging that female employees were subjected to sexual harassment and unequal pay.

“Generally, the CEO, CFO, anyone at that level, does have a fiduciary responsibility, if something comes to their attention — whether it's embezzlement or sexual harassment, or whatever it might be — to inform the board,” Jeffrey Cramer, senior managing director at Guidepost Solutions, and former federal prosecutor, told Yahoo Finance.

The Journal reported Monday that Kotick, who's also a board member, knew but failed to tell the rest of the board about the alleged rape of a female employee of Activision’s subsidiary, Sledgehammer Games, by her male supervisor. Internal documents, the Journal's report states, show Kotick held back the extent of what he knew about complaints “of employee misconduct in many parts of the company.”

The rape complaint, which was reportedly settled out of court without alerting the board, adds to federal regulatory investigations into the company's handling of misconduct.

On Tuesday, Activision's board released a statement in support of Kotick. "The Board remains confident that Bobby Kotick appropriately addressed workplace issues brought to his attention," the statement read.

At this stage, Cramer says, it’s not surprising that the board is maintaining public support for Kotick. Typically, the directors call for an independent investigation to find out who knew what, when, he says.

“The board will do a thorough review, and then once the board has more information," Cramer said, "that position might change."

'The standards are shifting'

Corporate law and governance experts say it's not just Kotick who can face scrutiny about who knew what, and when. It's unclear, he said, whether Kotick and the other board members could be legally liable for failing to alert shareholders and the board about alleged sexual misconduct. That's because of shifting expectations in the post #MeToo world, Douglas Chia a senior fellow at Rutgers Law School’s Center for Corporate Law and Governance, tells Yahoo Finance. Few courts, he says, have evaluated how fiduciary laws govern obligations of public company executives to disclose claims of sexual misconduct.

Employees of the video game company, Activision Blizzard, hold a walkout and protest rally on July 28, 2021. (Photo by DAVID MCNEW / AFP) 

“In today's environment, the standards are shifting, and there's more of an expectation that the investors want to know more earlier,” Chia says. “... There's nothing that really says what's legally required.”

The current legal landscape is “a very gray area” that likely invokes state corporate laws and federal securities laws that can pressure both the board and Kotick, according to Case Western Reserve University School of Law associate professor Anat Alon-Beck.

“I put it on the board, not just on the CEO,” Alon-Beck adds. “It’s a very delicate situation because the CEOs have obligations under securities laws to report on material events. I think today, after the #MeToo movement, this is a big deal.”

In Delaware, where Activision Blizzard is incorporated, state corporate laws make CEOs such as Kotick, as well as board members, fiduciaries to the corporation, Alon-Beck explains. The role requires them to exercise duties of care and loyalty to shareholders and makes them liable for breaching those duties.

Under federal securities laws, liability can arise if a “material” disclosure is omitted — though “materiality” has no clear and consistent definition, Chia said.

“You could have a claim that the CEO and or the board breached their fiduciary duty because they failed to monitor what was going on at the company, from a compliance point of view on sexual misconduct,” Chia says.

In August, shareholders filed one such suit, claiming Activision failed to inform investors that California’s Department of Fair Housing and Employment had been looking into claims of discrimination and sexual harassment, prior to the agency's lawsuit filed that month.

Several hundred Activision Blizzard employees stage a walkout which they say is in a response from company leadership to a lawsuit highlighting alleged harassment, inequality, and more within the company outside the gate at Activision Blizzard headquarters on Wednesday, July 28, 2021 in Irvine, CA.

 (Allen J. Schaben / Los Angeles Times via Getty Images)

Still, requiring a CEO of a large public company to report each and every instance of misconduct to the board is not likely a standard a court would impose, Chia said. However, he added, major allegations such as rape, and patterns of sexual misconduct claims, should indeed go that far up the chain of command.

For Alton-Beck, reporting significant events just to the board isn’t far enough as a strategy to protect against modern legal claims. Shareholders, she suspects, are going to have to be part of the equation.

Delaware state law requires board members to exercise oversight to avoid potential illegal conduct, she explains. In turn, the board should ensure that systems are in place within the company to help prevent illegal sexual misconduct and to learn about and investigate them, if they occur.

“If the court finds that [Activision] breached the duty of loyalty because they didn't exercise oversight, then they need to answer for the harm that they caused the corporation,” she says. “To me, it's a clear-cut case that there's a violation of duty of loyalty here, if they failed to put a system in place.”

Yahoo Finance contacted Activision Blizzard to obtain information about its oversight policies but did not receive a comment before publication.

Shares of Activision Blizzard (ATVI) were trading at $62.50 at market close on Friday, approximately 60% down from their 52-week high of $104.53.

Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.

For the Trump Family, LGBTQ+ People Are Nothing but a Joke

John Casey
Fri, November 19, 2021

Donald Trump Jr.

During one of my conversations with Mary Trump, she relayed a story about how her grandmother made crude jokes about Elton John singing at the funeral of Princess Diana. She used a vulgar term to describe the gay music legend.

Mary’s cousin Eric Trump isn’t known for his smarts. (My grandfather would say about him, “The lights are on, but there’s nobody home.”) He famously once said that he was part of the LGBTQ community, “I’m telling you, I see it every day, the LGBT community, they are incredible and you should see how they’ve come out in full force for my father every single day. I’m part of that community, and we love the man and thank you for protecting our neighborhoods and thank you for protecting our cities.” Is he really that obtuse, or was he joking?

He later said he had been trying to explain what LGBTQ+ Trump supporters have told him.

Donald Trump once joked that Mike Pence "wants to hang" gay people, according to a story in The New Yorker in October of 2017.

The story cited two anonymous sources who said Trump liked to joke about Pence’s hatred toward our community, “when a conversation with an unnamed legal scholar turned to gay rights, the president motioned to Pence and allegedly joked, ‘Don't ask that guy — he wants to hang them all!’"

Ironically, it turned out that the MAGA base wanted to hang Mike Pence on January 6 insurrection, but not because he wanted to hang gays; however, with that bigoted crowd of insurrectionists, the fact that Pence did want to hang gays might have spared him the gallows. But I digress.

These stories about Trump's mother and son joking about gays only shows that the apple doesn’t fall far from the tree. Like grandmother, like father, like grandson, Donald Trump Jr. finds humor in LGBTQ+ people.

Trump Jr. took to Twitter, like his father used to do but can’t now, to brag about his marvelous sense of humor and burgeoning creativity — of course, I’m being facetious. Apparently, Trump Jr. sells clothes — in this case, perhaps taking after his fashionista sister Ivanka?

Anyway, he’s selling hoodies and sweatshirts adorned with LGBTQ in rainbow lettering that stands for “Let’s Get Biden to Quit.” He’s clearly taking a page, or a frock, from the Trump campaign selling “Let’s Go Brandon” T-shirts. (Click here if you don’t know what that means. I don’t want to give it any more airtime). These Trumps must think they are so clever, or maybe Donnie Jr. was trying to smartly cover for his brother Eric, who I’m sure would boast about being part of this LGBTQ community.

But alas, Trump Jr. is anything but clever, selfless, or smart. According to his cousin Mary, “Donnie is a deeply unintelligent person. I’ve been asked who's the stupidest one, and it’s him.” She also said that he has an ability to “out-racism and out-misogyny anybody, and he’ll shoot as many innocent animals as possible to get whatever passes for affection in her family.”

She’s right! This isn’t Trump Jr.’s first foray into “out-homophobia anybody.” You can click here to the GLAAD page with all his transgressions against each letter of LGBTQ+. His ridiculing, mocking, attacking, and now “joking” know no bounds.

This ridicule of the LGBTQ+ community is not a joke. It is offensive. It is ignorant. And it is hurtful. While Trump Jr. jokes about changing the acronym, what he’s doing is again firing up the base. The MAGA crowd will infer that LGBTQ+ people are indeed a joke. They’ll lap up those T-shirts, parade around on the streets wearing them, and trash us on every corner to their neighbors and friends.

That’s the danger of manipulating that acronym. It’s less about getting Biden to quit and more about conveying another way to minimize our community. As Republican legislators quash LGBTQ+ rights, ignore equality bills, and gear up to come after us in the midterms, adding LGBTQ+ as a joke fits right into their quest to use our community as a divisive issue. They’ve already gone after Assistant Health Secretary Rachel Levine and Transportation Secretary Pete Buttigieg. LGBTQ is firmly in their crosshairs.

Trump Jr. thinks it’s all a big joke until it isn’t. This is Trans Awareness Week. And Donnie’s big punch line is a punch in the gut to the families of at least 46 trans and gender-nonconforming people killed in 2021. People are dying because they are a “T,” killing themselves because they are “G” or “Q,” hiding in the closet and suffering if they’re an “L” or a “B.” Does anyone see the joke in this?

How about this: Let’s turn MAGA into "Making All Gays Amazing" and put that on T-shirts and ballcaps. What do you think the reaction to that would be? There would be chaos, violence, and threats. Just think about all the turmoil surrounding the Republicans who voted for the infrastructure bill or voted to certify Biden for president or dare disagree that the election was rigged. These people don't make jokes or agree to be the butt of them, so why should we?

Jokes are not something that the Trump family and his base do very well. Spreading hate is what they do well, and that’s not funny at all.

John Casey is editor at large for The Advocate.

Right-Wingers Turn on Glenn Youngkin Over His LGBTQ Staffer and Vaccine Rules

Zachary Petrizzo
Fri, November 19, 2021

Chip Somodevilla

A severe case of buyer’s remorse appears to have set in among some conservatives over electing Glenn Youngkin as the next Republican governor of Virginia.

Over the past week, outrage has bubbled over among right-wingers and TrumpWorld allies alike, who are under the impression Youngkin has insufficient MAGA loyalty, citing his hiring of an LGBTQ staffer and his refusal to block COVID-related local mandates.

The hits started pouring in against the fleece-clad governor-elect earlier this week after he declared he would not attempt to block local vaccine and mask mandates across the Old Dominion—a break from more hardcore Republican governors like Florida’s Ron DeSantis.

Right-wing media figures almost immediately began publicly bashing the governor-elect. Judicial Watch founder Tom Fitton railed against Youngkin for refusing to stand up against “abusive” mask mandates, while right-wing outlet The Federalist tossed him under the bus for not being a “strong conservative governor.”

Right-wing talk radio hosts fumed as well. John Fredericks, who hosts a radio show on fringe channel Real America’s Voice, suggested Youngkin had turned on the Trump base that helped elect him. “Two weeks, post his election, here we go: Once again with another RINO alert,” he declared, accusing the millionaire Virginia gubernatorial victor of being a “Republican In Name Only.” Fredericks proceeded to slam Youngkin over only appearing on his radio program when he “needed” votes from the Steve Bannon sidekick’s hardcore MAGA fan base.

Elsewhere, right-wingers turned on Youngkin for the offense of having a staffer who identifies as part of the LGBTQ community.

Joshua Marin-Mora, a recent Georgetown University graduate turned Youngkin press assistant, faced a flurry of right-wing hate this week over “he/him” pronouns displayed in his Twitter bio.

“So, Youngkin chose a guy with pronouns in his bio to do his comms who also served on the Georgetown Latinx Leadership Forum and supports virtually everything Youngkin's voters voted against,” blared Pedro L. Gonzalez, a writer for the influential conservative think tank Claremont Institute, in a series of tweets. When other Twitter users unearthed pictures of Marin-Mora wearing LGBTQ Pride clothing, Gonzalez snarled, “The new GOP is actually worse than the old GOP.”

The lengthy thread attacking Marin-Mora was elevated by the likes of Pizzagate conspiracy theorist Jack Posobiec and far-right activist Lauren Witzke, while notably Fox News contributor Guy Benson came to the young staffer’s defense, writing that the staffer is “Latino & LGBTQ [and] holds some heterodox political views (as do most of us) but is proudly center-right. And he worked his ass off to help Youngkin beat McAuliffe, especially among Hispanics. Good hire by Glenn.”

Nevertheless, the existence of Marin-Mora on Youngkin’s team was enough for Gonzalez to declare that the incoming governor “is sinking the knife into people's backs.” And former Newsmax host John Cardillo lamented that the LGTBQ staffer was proof that “Youngkin will turn out to be another establishment disappointment.”

Marin-Mora did not immediately respond to The Daily Beast’s request for comment. Neither did Youngkin's communications director Matt Wolking, who took to Twitter to note that Marin-Mora is considered a “valued member” of the Republican politician’s team and that the right-wing attacks on him are “ignorant and foolish.”

There have long been questions raised about whether Youngkin's loyalties will lie with Trump's base or with the more moderate conservatives who voted for him throughout Northern Virginia, a heavily purple area of the state.

In the final weeks of his campaign, Youngkin played his cards close to his chest, as former President Donald Trump often extended endorsements of the candidate who was attempting to keep an arm's length away from the ex-president. Ahead of the election in early November, countless MAGA allies perceived Youngkin’s delicate dance around fully embracing Trump as nothing short of “brilliant.”

THE SQUISHY MIDDLE GIVES GRIEF

The Squad Gets Love From the Left—and Anger From Voters

Sam Brodey, Ursula Perano, Jackie Kucinich
Fri, November 19, 2021, 

Photo Illustration by Thomas Levinson/Photos Getty Images

The passage of President Joe Biden’s $1.75-trillion social welfare spending bill in the House was a much-needed win for Democrats. But for six progressive lawmakers who were willing to block the other half of Biden’s agenda in order to secure the rest of it, the victory was especially sweet.

After the Build Back Better Act passed Friday, Rep. Alexandria Ocasio-Cortez (D-NY) said the vote to approve the historic package of investments fighting climate change and expanding the social safety net was “why we even run and serve in Congress, to pass legislation like this that impacts people’s everyday lives, to transform our material reality.”

It was the fear of missing that opportunity that drove Ocasio-Cortez and the members of the so-called Squad to vote against a $1.2-trillion Biden-backed infrastructure bill two weeks earlier, even at the risk of denying Democrats and the president a key policy win—and inspiring the ire of voters in liberal districts that could badly use money for infrastructure.

Still, Ocasio-Cortez went so far as to say Thursday night that their stand had “contributed to the pressure and urgency of this vote tonight.”

That may have been more spin than reality, but regardless, the progressive star and the rest of the Squad can now claim real progress toward fulfilling the kinds of lofty promises they campaigned on.

And even though the Build Back Better legislation is far from finished—Sens. Joe Manchin (D-WV) and Kyrsten Sinema (D-AZ) may prevent it from ever becoming law—progressives can reasonably claim they did everything in their power to make that bill a reality.

In that effort, however, some progressives denied themselves the opportunity to claim credit for another key plank of Biden’s agenda.

The six members of the Squad—Reps. Ocasio-Cortez, Ilhan Omar (D-MN), Rashida Tlaib (D-MI), Jamaal Bowman (D-NY), Cori Bush (D-MO), and Ayanna Pressley (D-MA)—all voted against the massive infrastructure bill earlier this month.

While those six lawmakers have been hailed as heroes by progressives for helping to push the Build Back Better bill over the finish line in the House, the blowback for voting against a popular and much-need infrastructure bill has been a lesson in how all politics is local.

Back home, many constituents weren’t clapping their hands for Squad members; they were scratching their heads.

Dwayne Murray, a high school basketball coach in Bowman’s district, likes and supports his congressman after initially opposing him when he successfully unseated the area’s longtime congressman, Eliot Engel, in 2020.

But Murray told The Daily Beast that his initial reaction to the infrastructure vote was “disbelief.” His hometown of Mount Vernon—just outside New York City’s borders—has made national news for its dangerously decrepit wastewater infrastructure. The infrastructure bill, among other things, proposed $55 billion to fund water and sewer improvements.

“I was just completely flabbergasted that knowing what circumstances are with us, that he’d actually vote that way,” said Murray. “It said to me, and apparently a lot of other people, that idealism is more important than deliverables.”

Members of the Squad worked quickly to try to explain that they did not oppose the infrastructure bill, just the strategy behind it.

Bowman, for one, swiftly held a town hall meeting with constituents in his district—proof, Murray said, that he recognized “the four-alarm fire his vote caused.”

Democrats Finally Unite—to Mock Kevin McCarthy All Night as He Breaks Stupid Record

The New York congressman told The Daily Beast there was initially some confusion about the vote. “People felt that I voted against lowering prescription drugs. They felt that I voted against childcare. So, you know, the way it was reported and communicated, it was like we voted against the whole thing, like both bills together,” he said.

That led Bowman’s team to launch an “information and engagement campaign” across local media in an attempt to explain his rationale on voting down the bipartisan deal. The congressman says he found the “majority of people were OK with it” after hearing his side of the story.

Rhiannon Navin, a constituent of Bowman’s, told The Daily Beast as much. She supported his ‘no’ vote on the infrastructure bill to preserve the climate change provisions in the broader bill, and said that after town halls, some who were skeptical of the vote said, “I get it.”

Pressley also held a virtual town hall on Nov. 9. And it took one question before she was asked how she could vote against a bill that created jobs in her district.

After a lengthy explanation of all the dynamics that played into her vote, Pressley said it was ultimately about keeping her promises. “I just reject the false choice, I honored my promise that I made to my constituents to hold the line to delay the bipartisan infrastructure bill to keep our leverage in order to pass the Build Back Better Act and I'll continue fighting for every worker and family in my district,” she said.

To the Squad’s supporters, it was painful to watch the lawmakers taking heat for a stand predicated on passing the entirety of Biden’s agenda, and it continues to rankle them that Democratic leadership chose to put pressure on the left, not moderates, who had angled for months to pass the infrastructure bill and leave the Build Back Better Act for later.

“No one likes to be put in the position of voting down something they’d otherwise support,” said one progressive aide. “At the end of the day, who’s willing to vote their conscience? These six members.”

But that vote of conscience has, clearly, come with some real cost for these progressives.

In Ocasio-Cortez’s district, the New York Times found that even supporters didn’t approve of her vote, even if they understood her reasons for taking it. “Right mindset, but wrong execution,” one 27-year old constituent told the paper of his representative’s vote.

Three days after the vote, Tlaib saw a state senator, Shri Thanedar, announce he was considering a primary challenge. Thanedar told The Daily Beast that he would have voted for the infrastructure bill and claimed “people are really shocked and surprised by the ‘no’ vote.”

During his visit to a General Motors plant on Wednesday to promote the infrastructure law, Biden gave a shout out to Tlaib, who represents the part of Detroit where the factory is located. But unlike several members of the Michigan delegation, she didn’t get a ride there on Air Force One. Only ‘yes’ votes were invited to fly with Biden, according to a White House official.

Progressive aides and operatives close to the Squad admit their votes against the infrastructure bill will not help them.

“It has been really hard for them,” a top progressive aide on Capitol Hill said of the Squad. “They’re going to be in a tough spot when the Department of Transportation announces a project in their district anytime in the next 10 years… They did a very brave thing knowing that they will have to live with the political consequences of taking this vote.”

Max Berger, a strategist who formerly worked to elect Squad members at the outside group Justice Democrats, told The Daily Beast, “It’s a tough vote, it does not look great.”

Democrats Hand Joe Biden His Long-Awaited Infrastructure Win

But progressives like Berger see that tough vote as a vindication of why the Squad was sent to Congress in the first place: to do difficult things in service of achieving real progressive wins that they campaigned on.

They failed, at least in the short term, but if there were more progressives willing to vote ‘no’ that night, things might have gone differently. “I don’t think this is a cause for recalibration of the overall strategy,” said Berger. “It shows we need more people like this in Congress.”

Fulfilling that goal continues to be an active project for groups like Justice Democrats, which is targeting four incumbent Democrats in 2022 with challenges from the left. But there’s a tension in casting the infrastructure vote as exhibit A for electing more Squad members.

And progressives acknowledge that.

Their stand might have been praised as a fierce fight for the left’s values. But politically, those who took it will be lucky if many of their constituents forget about it. And there’s a real risk many could remember it as a reason to think twice about supporting them.

Either way, progressive advocates seem satisfied that the worst case will be avoided. “If we’re ever going to get to a politics that’s more than taking a poll of what’s popular and reflecting it back to people, we have to have politicians willing to take hard votes and communicate why,” said Leah Greenberg, co-founder of the progressive group Indivisible.

It’s also the case that along with the blowback Squad members received, there was also understanding and even appreciation for their votes.

The Democratic Mayor of St. Louis, Tishaura Jones, attended the infrastructure bill signing at the White House, with the legislation slated to deliver $9 billion to Missouri in repairs for roads and bridges, public transit fixes, water quality improvements and expanded broadband access.

But even then, Jones’ office said the mayor understood the decision of local congresswoman Cori Bush to vote down the bill.

“St. Louis still needs federal action on issues that matter to families,” Jones’ personal information officer, Nick Dunne, told The Daily Beast.

In Massachusetts, state Rep. Steve Owens (D) said he completely respects and understands congresswoman Pressley’s decision to vote against the infrastructure deal for the sake of Build Back Better. “The constituents that I talk to feel similarly, and she has our support in the district,” he said.

The vote clearly showcased the Squad’s commitment to one another. Bowman said, leading up to the infrastructure vote, the group decided to travel together to the House floor to cast their votes in order to “come in together in both political and physical solidarity.”

That plan was, in part, a reaction to a high-profile vote in May to approve more funding for the U.S. Capitol Police. Members of the group “felt like we were being pushed around… So this time, we just wanted to be together,” Bowman said. On that vote, Bush, Omar and Pressley voted against the bill, while Bowman, Ocasio-Cortez and Tlaib voted present.

“There are times where even the six of us don’t vote the same way, right. But when we are, especially with something that’s high-profile, you know, we want to get each other’s backs,” Bowman added.

This year has been a big turning point in the cohesion of the Squad as a group, said an aide familiar with their dynamic. Part of the reason why is the closeness of staffers, who regularly communicate with each other both online and outside the House floor during votes.

“There’s a lot of community in this,” said the aide, who observed that the Squad is increasingly “taking similar positions less popular” within the broader Democratic caucus.

These members surely recognize that Democrats are facing a stark reality in the 2022 midterms—and they are banking on the confidence that their constituents elected them for votes like this.

“Every single vote that we take comes with a positive and a negative reaction from our constituents, and this vote is similar,” Omar told The Daily Beast.

“I feel pretty confident that my district understands the reasoning behind it and believes that I am here to make sure that my promises to them are kept,” she added.

If Kevin McCarthy can’t see the truth about ugly and violent video, Fresno doesn’t need him




The Fresno Bee Editorial Board
Fri, November 19, 2021, 6:00 AM·3 min read

In the week leading up to Veterans Day, Rep. Kevin McCarthy of Bakersfield highlighted a different member of the armed services each day in his social media posts.

It was a nice gesture from the Republican leader in the House to honor the military. It was a genuinely American thing to do.

But earlier that week, another Republican member of the House, Paul Gosar of Arizona, posted an animated video on Twitter that portrayed him stabbing Democrat Rep. Alexandria Ocasio-Cortez of New York in the neck. Blood spurts out of her wound. Gosar then flies to a large image of President Biden to battle him.

It was all make-believe. Still, the anime video generated 3 million views before being removed, and understandably ignited the outrage of Democrats. They united on Wednesday to formally censure Gosar and strip him of all committee assignments. Gosar became only the 24th House member to be censured, which is one step from expulsion.

How did McCarthy react to Gosar’s stunt? Not by condemning the demeaning video, but by complaining how House Speaker Nancy Pelosi of San Francisco was “breaking another precedent” with the censure process.

That was a genuinely un-American thing to do.

McCarthy joined 206 other Republicans to vote against censure. Only two GOP members voted for it.

A few days before the censure vote, McCarthy told CNN that he chatted with Gosar about the video. “I called him when I heard about the video, and he made a statement that he doesn’t support violence, and he took the video down.”

That was the extent of emotion from McCarthy over a Republican colleague’s fantasy video showing him attacking the Democratic congresswoman. As for leadership, McCarthy raised the threat to remove Democrats from committee posts should the GOP recapture the House majority in next year’s election and he becomes the speaker.

McCarthy’s hypocrisy is this: Pay homage to the U.S. military in one breath, stand by silent when a fellow Republican creates a nasty video about a duly elected member from the other party, herself an American.
Valley needs honesty, truthfulness

So why should this matter to people living in the central San Joaquin Valley? Because if the nonpartisan commission redrawing political boundaries has its maps adopted, McCarthy’s 23rd District could extend all the way to Clovis and Fresno starting next year.

And if Democrats lose the majority in the House, McCarthy would become the next speaker, making him one of the most powerful politicians in the land, and the third in line to lead the executive branch if the president and vice president are unable to do so for whatever reason.

So the question arises: Is McCarthy capable of seeing things as they really are — i.e., Gosar totally earned censure with his beyond-the-pale video — or will he be a power-at-all-costs politician, empty of ethics and values?

By failing to forcefully speak against Gosar, McCarthy effectively gives quarter to those who would like to destroy American government — like many of those who stormed the Capitol on Jan. 6.

Hypocrisy also emerges if one flips the script. What if a Democratic representative had created a video showing an attack on then-President Trump? Would McCarthy have remained similarly dismissive?

Residents of the San Joaquin Valley need representatives who are truthful, honest and courageous. They are not well served by politicians bent on nothing more than securing power. The problems are too pressing — better health care access in a region way too short of doctors; a fully diversified economy that provides more head-of-household wages; and consistent water deliveries to support agriculture, the backbone of the Valley.

If McCarthy’s district does extend to Fresno, he should be prepared to do the work while handing out discipline to extremists like Gosar when necessary. If he cannot commit to that, Bakersfield can keep him.

Alexandria Ocasio-Cortez mocks the

'stunning diversity' of the GOP: 

'Look at all of those different-colored ties'

Eliza Relman

Fri, November 19, 2021, 

Rep. Alexandria Ocasio-Cortez (D-NY) walks to the U.S. Capitol Building on November 18, 2021 in Washington, DC.Anna Moneymaker/Getty Images

• Rep. Alexandria Ocasio-Cortez mocked the "stunning diversity" of House Republicans on Thursday night.

• Ocasio-Cortez joked that the predominantly white, male caucus exhibited a diversity of ties and haircuts.

• The congresswoman dissed House GOP leader Kevin McCarthy as he spoke for more than 8 hours on the floor.

Rep. Alexandria Ocasio-Cortez mocked the "stunning diversity" of the GOP as House Republican Leader Kevin McCarthy condemned the Democrats' social and climate policy bill from the House floor on Thursday night.

The 31-year-old congresswoman pointed to McCarthy and his mostly white, male colleagues on a television screen in the House cloakroom and joked that their colorful ties and variety of haircuts exhibited diversity.

"Kevin McCarthy speaking against unions, speaking against universal pre-K, childcare, et cetera, along with all these Agent Smiths in the background, exhibiting the stunning diversity of the Republican party," she said. "Look at all of those different-colored ties and haircuts."

The House Republican caucus, which numbers 213 in total, includes just 31 women, five of whom are women of color, and 14 men of color. On the Democratic side, the caucus is about 40% female and about 40% are people of color.

Congressional Democrats didn't mince words when criticizing McCarthy's record-breaking eight hour and 32-minute long speech, which delayed the House vote on President Joe Biden's $2 trillion bill until Friday morning. The bill passed 220-213.

In the same video, Ocasio-Cortez said McCarthy "managed to speak for over an hour with one of the lowest vocabularies I have ever seen coming from a member of House leadership of any party."

She added, "It is stunning to me how long a person can talk, knowing, and exhibiting, and communicating so little."

Trump's Estate Tax Giveaway To Rich Triggered 50% Drop In The IRS Revenue: Report


Mary Papenfuss
Sun, November 21, 2021, 3:18 AM·1 min read

As Republicans bellyache about Democrats not balancing the budget, a new report reveals that a massive Trump administration estate tax giveaway that particularly served the ultra-rich sparked a 50% plunge in IRS revenue from the taxes.

Estate tax payments dropped from $20 billion to just over $9 billion last year, Bloomberg reported, based on its analysis of IRS data.

American billionaires, meanwhile, have doubled their collective net worth to more than $5 trillion in just over five years.

The “dramatic decline” in estate tax revenue is largely the result of the Republicans’ 2017 tax overhaul, which doubled the amount the wealthy can pass to heirs without paying any estate tax, Bloomberg noted.

Married couples can now transfer $23.4 million over their lifetimes tax-free.

But the ultra-wealthy can also afford to hire high-end attorneys and other advisers to squeeze even more out of the system.

In just one example, Nike founder Phil Knight used various strategies to transfer billions of dollars to his family tax-free, Bloomberg revealed last month in an investigation.

Democrats had discussed trimming back some of the massive Trump tax giveaways to the wealthy in President Joe Biden’s Build Back Better package. But those didn’t make the cut in the final bill passed by the House on Friday.

Bloomberg said the $10 billion estate tax collected now by the federal government is an “imperceptible” portion of the total $4 trillion revenue collected by the federal government.

The estate tax is viewed as one of the most efficient and direct ways to shave off government revenue from billionaire dynasties.

BEHIND PAYWALL
Check out the full story in Bloomberg here.

  

Who pays America's taxes?

The Week Staff
Sat, November 20, 2021

Taxes. KAREN BLEIER/AFP via Getty Images

During the debate over spending bills, Democrats proposed raising taxes on the wealthy. Do the rich pay a fair share? Here's everything you need to know:

What do the wealthy pay?

Generally, a much lower percentage of their incomes than the middle class. A White House study released in September found that America's 400 wealthiest families paid an average federal income tax rate of just 8.2 percent from 2010 to 2018. The rich do pay other taxes not included in the White House analysis, such as estate taxes, but in recent decades, most kinds of taxes on the wealthy have been substantially cut. The marginal tax rate for the top tax bracket held at above 63 percent between 1932 and 1982, spiking as high as 92 percent in the 1950s. Now, after decades of cuts that started during the Reagan administration, the top marginal rate stands at 37 percent. In addition, payroll taxes to finance Social Security and Medicare are levied on laborers and CEOs at the same rate, and only up to $142,800 in income. If you include all taxes, such as sales and state taxes, the country's top 1 percent earn about 21 percent of total income and pay about 24 percent of total taxes, making our tax system progressive — but mildly so.


Why isn't it more progressive?

In writing and amending the tax code over the decades, Congress has been heavily influenced by the political contributions of wealthy Americans and large corporations, and the armies of lobbyists they send to Washington. Investment income is taxed at a much lower rate than salaries, on the theory that this encourages business growth and stimulates the economy. The tax code is also filled with loopholes and deductions only the wealthy can take. An analysis by ProPublica earlier this year, based on a trove of leaked IRS data, showed that mega-billionaires Jeff Bezos, Elon Musk, and Warren Buffett have paid no federal income taxes at all in some years, and a very low percentage on their massive gains in wealth. Bezos, one of the world's richest men, paid $973 million in personal federal taxes on $4.2 billion in reported income between 2014 and 2018. His wealth, mostly in the form of Amazon stock, increased by $99 billion during that same time period, giving him a "true tax rate" of 0.98 percent, ProPublica said. Corporations pull similar tricks: Between 2018 and 2020, 39 S&P or Fortune 500 companies managed to pay no income tax while recording a combined $122 billion in profits.

How do they do it?

Corporations and the super-affluent can employ accountants and lawyers who know how to manipulate their capital gains, interest, and dividends. Executives paid in stock, for instance, can sell their losing investments at the end of the year to zero out their taxable growth. The wealthy also engage in asset-based lending — borrowing money against their portfolio rather than selling appreciated investments that may incur capital gains taxes. Rich Americans can keep wealth in the family by passing assets to heirs and exploiting a loophole called "step-up in basis." This means the value of an inherited asset generally adjusts to what it's worth on the date of its original owner's death — meaning years or decades of gains before that date instantly become tax-free. "As long as you're adhering to the law," says Sharif Muhammad, founder and CEO of Unlimited Financial Services, "everything's fair game."

Can wealth itself be taxed?

Oregon Sen. Ron Wyden and some other Democrats recently pushed for a "billionaire tax" that would tax the richest Americans on unrealized capital gains. But such a tax would face constitutional challenges, and billionaires quickly accused progressives of waging class warfare. "Eventually, they run out of other people's money and then they come for you," tweeted Musk, the Tesla CEO, who's worth roughly $280 billion. From a practical standpoint, taxing unrealized gains would require a major revamping of the tax system, giving an already overwhelmed IRS the tricky task of valuing assets such as private businesses.

Who does the tax code favor?

It has a strong bias for investment income over wages, and thus worsens income inequality. The top 10 percent now own 70 percent of the wealth, up from 60 percent in 1990, and any attempt to alter the status quo runs into powerful, well-financed opposition. The Biden administration's plans to raise taxes for spending bills, for example, have met a torrent of organized corporate opposition on Capitol Hill. "We're doing it in every way you can imagine," said Aric Newhouse, the senior vice president for policy at the National Association of Manufacturers. So far, those lobbying efforts have been successful; though a 15 percent corporate minimum tax and a surtax on incomes over $10 million remain on the table, proposals to increase tax rates on the wealthy and corporations have been dropped.

How the IRS was gutted

The IRS has never been America's most popular government agency, and conservatives have harbored suspicions about its usefulness since the 1990s. Their hostility escalated dramatically in 2013, with reports that "Tea Party" groups seeking tax-exempt status were receiving extra scrutiny. The IRS also targeted groups with "progressive" and "green" and other partisan labels in their names, but enraged Republicans accused the agency of bias and political persecution. They escalated their efforts to cut the IRS budget, reducing the number of auditors by one-third. In 2017, the IRS conducted 675,000 fewer audits than it did in 2010, a drop of 42 percent, and auditors are stretched so thin that they are reluctant to take on complex returns filed by the wealthiest citizens. As a result, the IRS now audits Americans who receive the earned-income tax credit — whose incomes are about $20,000 — at about the same rate as people earning $500,000 to $1 million. For this to change, Pam Reicks, a former IRS manager, told ProPublica, the IRS needs a bigger budget and more employees. "You can see all this abuse and fraud and people not paying their taxes," she said, "but can't use your hands to get it."

This article was first published in the latest issue of The Week magazine. 

This member of Congress wants everyone to know about the 'dark money scheme' that's 'captured' the Supreme Court
Oma Seddiq
Sat, November 20, 2021

Sen. Sheldon Whitehouse (D-RI) speaks as Supreme Court nominee Judge Amy Coney Barrett testifies before the Senate Judiciary Committee on the third day of her Supreme Court confirmation hearing on October 14, 2020.Susan Walsh-Pool/Getty Images


Sen. Sheldon Whitehouse is fighting to end the "dark money" that he says is plaguing the Supreme Court.

The Rhode Island Democrat is referring to private groups using anonymous donations to advance their interests at the highest court.

Whitehouse spoke with Insider in a recent interview to discuss his views.

For the ninth time this year, Sen. Sheldon Whitehouse gave a speech this week blasting right-wing anonymous donors whom he believes have "captured" the Supreme Court and "built" its current 6-3 conservative majority.

"Our Supreme Court is awash in dark money influence," the Rhode Island Democrat said on the Senate floor on Tuesday. "The American people may not be able to see all of the rot, but they can see enough to know that something is rotten over there across First Street at that court."

Unlike some members of his party, Whitehouse has steered clear of reform ideas such as adding more seats to the bench or setting term limits for justices. Instead, the three-term senator has been vehemently pushing for financial transparency in the third branch of government to expose how it's been influenced by a far-right conservative agenda.

Whitehouse, who chairs a key panel on the Senate Judiciary Committee, calls it a three-fold "scheme" — private groups use anonymous donations to groom Supreme Court candidates, promote and defend these nominees with political ad campaigns and later try to influence these justices in legal briefs filed without any financial disclosures.

"If it's the same people who paid for all of it, particularly if they're the same people who are funding politicians, then it becomes not just a problem, but potentially toxic," Whitehouse, 66, said in a recent interview with Insider.

According to the senator's findings, the effect of this operation is being played out during Supreme Court Chief Justice John Roberts' tenure, which has handed down at least 80 partisan decisions that advanced conservative interests.

"It's a terrible record," Whitehouse said.
'The scheme'

When Whitehouse began investigating the matter years ago, he "had a general sense that things had gone off the rails" at the Supreme Court and wanted to do research to show "how big, special interests hiding behind dark money had been able to exert their power," he told Insider.

In a report published last year by the Harvard Journal on Legislation, Whitehouse laid out his evidence of the dark money trail by pointing to major Supreme Court decisions that delivered wins to conservatives. Those rulings included allowing unlimited corporate spending on political campaigns, reversing the rights of labor unions, and weakening voting rights.

The U.S. Supreme Court on September 25, 2021.Stefani Reynolds/Getty Images

The trend is only continuing, according to Whitehouse. What he finds most troubling is an increase in the number of legal briefs, known as amicus briefs, that are filed without any financial disclosure to convince the justices to rule a certain way.

"The rule of the court purports to say that you can't hide behind a front group. There's almost no other situation in court where somebody is allowed to come in and not identify themselves, and yet there is conspicuous non-enforcement of that rule, and it deprives the public of seeing the coordination among the phony front groups," Whitehouse said, adding that he doesn't "understand why the court doesn't clean that up itself."

In the current term, hundreds of briefs tied to a slew of contentious cases have been filed to the Supreme Court. One highly-watched case, concerning a Mississippi law that bans abortion after 15 weeks of pregnancy, has attracted dozens of briefs that express support for or opposition to the law.

"We're seeing in real time this vector of anonymous influence deploying in enormous numbers on these political cases and that's just a rotten site for a court to present to the country," Whitehouse said.
Democrats have glossed over the Supreme Court

How conservatives have come to have greater control over the Supreme Court, and the federal judiciary as a whole, comes years in the making, experts say.

For decades, Republicans have eyed the courts as a method to uphold their political power, building a network of conservative lawyers and judges and empowering conservative groups like the Federalist Society. Using this backbone, former President Donald Trump filled more than 200 court seats with conservatives.

"They focused on the least democratic branch, the one that doesn't respond to voters, the one that could impose its will from behind ropes, as the vehicle for getting their ideology imposed on the American people," according to Whitehouse.

Still, Whitehouse acknowledges that at the same time Republicans cultivated this strategy, Democrats just weren't paying enough attention.

"Democrats have been overlooking the Supreme Court for a long time and are now getting a wake-up call," he said.

Though the senator claims the court is presently fueled by conservative dark money groups, anonymous political donations indeed go both ways. Democrats actually drew in more funding from dark money than Republicans in the 2020 election cycle, according to OpenSecrets.

And now Democrats, who are in the majority, have control over the judicial confirmation process. So far in his tenure, President Joe Biden has appointed 28 federal judges.

Justice Amy Coney Barrett was President Donald Trump's third appointment to the Supreme Court.Jabin Botsford/The Washington Post via Getty Images

Whitehouse weighed in on the partisan reality and told Insider that ultimately, "whatever rule we should impose to clean up this mess should apply completely irrespective of party or point of view."

Americans have caught sight of the politics that surround the Supreme Court and have formed negative impressions of the institution. A new Quinnipiac University poll released Friday found that more than 6 in 10 Americans say the Supreme Court is motivated primarily by politics. That comes on the heels of all-time low public approval ratings of the Supreme Court with some justices speaking publicly in recent months to try and restore the public's faith.

"It's one of the things that really tears at me because on the one hand, the best thing for this country would be a United States Supreme Court that everybody had confidence in and was proud of, and that was seen to be staying in its proper lanes," Whitehouse said. "But on the other hand, once it becomes evident, as it is to me, that the emperor has no clothes here, it's just as important to call it out because a court that is masquerading as a regular court, but is actually a captured vehicle for big, special interests, is the most dangerous."
'They're just trying to shut me up'

Whitehouse has been pursuing multiple avenues to overhaul the system. He's attempted to advance legislation that would enhance financial transparency in the government and the courts, yet little progress has been made. A bill he wrote to tackle the issue was included in the Democrats' voting and elections legislation, but Republicans blocked it last month.

Besides Congress, Whitehouse has also called on the White House to examine the role of dark money at the Supreme Court. This week, he and three Democratic lawmakers wrote a letter to Biden's Supreme Court commission to do just that, after the group released a draft report last month that failed to touch on the topic.

"It just doesn't make any sense," Whitehouse said. "The fact that they couldn't even grapple with that issue was hard to accept."

There are also some areas that the Supreme Court can easily address itself, including establishing ethics codes for the justices, providing financial disclosures of amicus briefs, and reporting about gifts and hospitality the justices receive, according to Whitehouse.

Critics have slammed Whitehouse's views of the nation's highest court as disrespectful and mistaken, with some condemning them as conspiracy theories or myths. Others have said that Whitehouse just wants to rewrite the rules because the court is not making decisions to his liking.

The Wall Street Journal editorial board wrote in March that Whitehouse's quest has been "undermining judicial independence and restricting the First Amendment rights of private citizens to influence their government."

During testimony at a committee hearing chaired by Whitehouse that same month, a legal expert reiterated those points, and argued that the recent trend of Supreme Court decisions aren't a consequence of right-wing influence, but a consequence of the justices' judicial philosophies.

"Rather than address the substance of their decisions on the merits or, where applicable, seek reform of the relevant laws at issue in contested court decisions, the Supreme Court's critics prefer to demonize the justices and imply nefarious motivations," Jonathan Adler, law professor at Case Western Reserve University, said.

Often the lone member of Congress regularly vocalizing the "scheme," Whitehouse stands firm in his beliefs and vows to continue to promote and fight for them.

"The issue that I have with a lot of the counterattack is that it's just name-calling that fails to address the problems that I've identified," Whitehouse said. "When I see that, that really only confirms my view that they can't defend what they've done. They're just trying to shut me up."

"Why would they want to do that if they weren't trying to protect a court that they'd captured?" he added.

Read the original article on Business Insid

IRS seized $3.5B in crypto-related fraud 

money this year as illicit activity multiplies

David Hollerith

·Senior Reporter

Fri, November 19, 2021, 

The Internal Revenue Service’s Criminal Investigations Unit (IRS-CI) seized $3.5 billion from cryptocurrency-related fraud cases over the fiscal year of 2021, according to an annual report published by the agency, underscoring how the booming sector has also sparked a rise in the illicit use of crypto.

According to the IRS-CI, 93% of the total money they seized this year came from crypto-related cases, the latest sign that fraudsters and scammers have found a way to leverage the soaring popularity of digital coins to their advantage.

While 2021 isn't officially over, the amount of funds stolen through hacks and fraud within the cryptocurrency sector this year is likely to eclipse previous years. The most obvious reason being that the asset class has more than quadrupled, according to data from Trading View.

Blockchain forensics firm Chainalysis estimates that illicit funds in cryptocurrency amount to a slim 1% of all cryptocurrency transactions, suggesting crypto is used far less for illegal activity than some critics have argued. But with the asset class's total market capitalization nearly $3 trillion dollars, that 1% sum translates into at least $20 billion worth of illicit cryptocurrency transactions.

The tax agency's CI unit remains one of the largest and oldest law enforcement units working investigations within this space. Major early cases for the unit included the billion dollar seizure of assets from the online drug marketplace, Silk Road as well as the 2013 hack of Mt.GOX, at the time the world’s biggest cryptocurrency exchange.

“It was all money-laundering cases and that’s still part of our portfolio of crimes,” Jarod Koopman, the IRS-CI's acting executive director of cyber forensics, told Yahoo Finance earlier this month. “Crypto is inherently money. No matter what the crime, if money is the underlying factor, we’re involved.”

Decentralized finance (DeFi) has suffered a particularly large amount of crime. A new research report from blockchain analytics firm Elliptic shows that DeFi fraud and theft losses in 2021 amount to $10.5 billion. Unlike traditional finance or centralized cryptocurrency projects, DeFi protocols have many more entry points for hackers.

“All they need is to exploit a single smart contract vulnerability,” Koopman said. He added that DeFi was a segment of the crypto sector that the IRS-CI has shown significant interest in recently.

Two notable DeFi hacks include the $600 million theft from the platform Poly Network, as well as the PAID Network's $180 million loss from an exploit.

Chainalysis and other Blockchain forensics companies like CipherTrace and Elliptic supply the software component that augments crypto investigations by law enforcement and other government agencies. 

These tools help piece together transactions flows across cryptocurrency payment networks. The assumptions aren’t always perfect, but Koopman noted the software has become essential to enforcement efforts.

The IRS-CI is “scaling up” their cryptocurrency focus according to Koopman. The unit's success rate of seizure alone shows why their focus on the asset class is an increasing priority. 

'Several open investigations' into dark crypto money

New York Attorney General Letitia James (L) and Queens District Attorney Melinda Katz take a look at some guns after a gun buyback event organized by the New York City Police Department (NYPD), in the Queens borough of New York City, U.S., June 12, 2021. REUTERS/Eduardo Munoz

Meanwhile, the IRS isn't the only law enforcement agency looking to invest more time and resources into the asset class. Local officials are also diving into the rabbit hole of illicit crypto flows.

Queens District Attorney Melinda Katz told Yahoo Finance that “increased global awareness of cryptocurrency has not only attracted investors” but also fraudsters who “are quick to adapt and are always looking to exploit new technologies.”

Katz's office has invested in “technologies and partnerships” that allow them to pursue cryptocurrency-related crimes. While she declined to comment on specifics, Katz admitted that the District Attorney’s office has “several open investigations into cryptocurrency related crimes.”

The type of cryptocurrency-related crime they investigate involves fraudulent investment schemes, where victims hand over their money with the expectation that it will be invested in digital coins — only to find the fraudsters have fled with the money. This style of fraud is known in digital money circles as an “exit scam” or “rug pull.”

The crypto provisions within the recently signed Infrastructure Bill also provide more ground by which the IRS-CI and other agencies can surveil cryptocurrency owners. 

For instance, the $1 trillion bill carries specific tax reporting requirements for market entities which fall under the term "broker," as well as applying tax code for cash transactions to cryptocurrencies.

The latter requires receivers in an exchange of $10,000 worth or more to verify and report the identification and social security number of the sender. Under this new law set to begin in 2024, failing to do so when transacting cryptocurrencies will result in a felony charge. But critics have argued this reporting requirement could discourage the use of digital assets altogether as part of their nature entails transacting pseudonymously.

“We want every agent to have a good baseline knowledge for working crypto cases,” Koopman added. “Its a space that we’re all passionate about and enjoy working in.”

David Hollerith covers cryptocurrency for Yahoo Finance. Follow him @dshollers.