Behind the corinthian columns of the U.S. Chamber of Commerce, the country’s premiere corporate advocacy association, talk of a crackdown on immigrants takes a clinical tone, far different from the bombastic rhetoric found on talk radio or at a Donald Trump campaign rally.
Lora Ries, speaking at a Chamber conference in 2011 on national security and immigration, spoke calmly about the need for a vast expansion of immigration enforcement. And rather than simply securing the borders, the government should “focus on interior enforcement so that there are those routine consequences,” she said. The government should integrate databases and step up the criminal penalties for those in the country without documentation. After all, she noted, we must “remove the hay to expose the needles.”
Ries, a longtime lobbyist for a variety of homeland security contractors, is one of the latest hires by the Trump transition to remake the Department of Homeland Security.
Her selection is the latest evidence that Trump is preparing to fulfill his pledge to step up deportations.
Ries began her career in government, serving as an official with the U.S. Immigration and Customs Enforcement (ICE) and as a Republican counsel to the House Subcommittee on Immigration and Border Security. But for much of the last decade, Ries has moved through the revolving door as a lobbyist for the contractors profiting from harsh immigration policies.
Her current employer is CSRA International, a massive federal information technology contractor that, among other things, sells the GangNet software that underpins gang databases maintained by 13 states, ICE, the FBI and ATF.
Disclosure documents show that in 2008, Ries lobbied on behalf of USIS, a company that provided background checks for the federal government, on its work for the controversial Secure Communities program. Secure Communities, developed in 2008 under President George Bush as a partnership between federal and local law enforcement, compelled local police to share arrestees’ fingerprints with federal immigration officials, a move designed to initiative deportation proceedings.
The program was criticized for its role in deputizing local police as immigration officials, and for driving undocumented communities underground for fear that even reporting a crime to the police could lead to being turned over to ICE. In 2014, President Obama replaced Secure Communities with the Priority Enforcement Program, an effective rebranding strategy that kept many of the same enforcement priorities regarding undocumented migrants with criminal records. The measure was announced alongside the intended carrot of immigration relief in the form of executive action to allow the parents of permanent residents, as well as minors who entered the country, an opportunity to apply for deferred action in order to prevent deportation. The program for parents was blocked this year by a federal court.
The role of private contractors such as USIS in spearheading the program has received little scrutiny. LinkedIn pages for several former analysts for the firm working on the program provide some clues. One analyst employed by USIS to work on Secure Communities said he “analyzed the immigration status and criminal history of all non-US citizens arrested in the jurisdictions that participated in this program” and “helped prioritize the removal of those individuals who posed the greatest risk to public safety.”
USIS, notably, lost a lucrative contract with the federal government last year after it was revealed that firm frequently submitted fraudulent background investigative work to its government clients, including the Office of Personnel Management, that was the victim of a massive hack involving millions of government personnel records in June 2015. The firm was also the same company that performed the background check on National Security Agency whistleblower Edward Snowden. Last year, after losing its contract, Altegrity, the USIS parent company, filed for bankruptcy protection.
Ries, from 2007 to 2010, lobbied Congress and the federal agencies on a broad range of homeland security issues on behalf of private contractors, including Boeing, General Dynamics, CA Technologies, EADS North America, Implant Sciences Corp., L1 Identity Solutions, and TASC Inc.
She went on to work for Computer Sciences Corporation, helping to lead the firm’s immigration and security work with the government. CSC, known widely for its work on behalf of the military, also provides contract solutions to immigration-related government agencies. In 2011, the firm landed a $67 million contract to maintain the U.S. Citizenship and Immigration Services’ system for E-Verify, the program to allow businesses to verify the eligibility of new employees.
“Criminals and terrorists hide by blending in with ordinary people engaged in everyday, lawful activities,” claims a CSC document published on of the “Business Challenge” of immigration. “For front-line officers, confidence in border-crossing identities and the ability to accurately assess the risks each individual poses, is more difficult and more important than ever,” it further adds, listing Ries as the CSC official to contact.
The selection of Ries as a senior official overseeing the transition at DHS, the agency that includes ICE and border enforcement, means privatized deportation interest groups will have a direct line to the new administration.
Already, major government contractors are viewing Trump’s promised immigration policies as a potential goldmine. CACI International, a defense contractor, told investors in November that they stand poised to benefit from increased immigration enforcement. Palantir, the intelligence firm backed by Trump adviser Peter Thiel, maintains a significant contract to analyze troves of data used by ICE for deportation proceedings.
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Back in September, I wrote a seven-part series at The Intercept chronicling how former Wall Street trader Chris DiIorio, determined to figure out how he lost a small fortune on a penny stock, came to the conclusion that gigantic market-making firm Knight Capital, now known as KCG, repeatedly violated federal regulations meant to prevent abuse in what are known as “naked short sales.”
It was an explosive allegation. Naked short sales are when you sell a stock you don’t have. That’s illegal most of the time, for obvious reasons. DiIorio found evidence that KCG had illegally conducted nearly two billion dollars’ worth of them.
It was a bit of a mystery story, with two unanswered questions at the end: Was DiIorio right? And if so, why hadn’t any regulatory authority done anything about it?
One regulatory authority finally has, and its action would seem to confirm DiIorio’s suspicions.
The Financial Industry Regulatory Authority (Finra), a private self-regulatory organization, charged KCG on October 31 with thousands of violations over three years of Regulation SHO, which according to the Securities and Exchange Commission (SEC) “was established to address concerns regarding persistent failures to deliver and potentially abusive ‘naked’ short selling.
Finra further found that KCG “failed to establish and maintain a supervisory system” to comply with Regulation SHO going back to 2012, when the company was re-constituted through a merger.
“So Finra is admitting that KCG never had a system in place,” DiIorio said in an emailed statement.
But despite the routine of repeated misconduct, KCG accepted a settlement on November 22 for a mere $105,000 and some new monitoring. KCG did not even have to admit wrongdoing.DiIorio’s reaction: “What a deterrent!”
Regulation SHO violations were central to DiIorio’s claims that KCG isolated and targeted penny stocks through naked short selling.
A short sale is a bet that a stock price will drop. Short sellers borrow stock shares from a broker and sell them into the market, hoping to return them to the borrower after buying the same number of shares back when the stock falls in value, profiting from the exchange.
But with a naked short sale, the trader doesn’t even borrow the stock. This creates artificial shares in a security, increasing supply and crippling the sale price.
Naked short selling is only legal for market makers like KCG, so that if there’s high demand for a stock, a market maker can fill orders even if they don’t have the shares immediately available. DiIorio, who began to investigate this after a penny stock he purchased was wiped out in 2006, concluded that KCG doesn’t engage in naked shorting to facilitate markets, but rather to make money for themselves by battering penny stocks.
Naked shorts cannot stay naked forever. SEC rules dictate that naked short sellers must eventually deliver shares to the buyer and close out the trade. Not doing so results in a “fail to deliver,” the securities version of an IOU. Under Regulation SHO, short sellers have to cough up the stock within one day of incurring the fail.
Finra staff reviewed four separate time periods from 2012 to 2015, spot-checking for errors. Most of the problems were found between June and July 2013, when Finra found 3,477 separate instances of KCG engaging in “a short sale for its own account without first borrowing the security,” a description of naked short selling, “while it had a fail-to-deliver position… that had not been closed out.” According to a footnote, these naked shorts were done “to facilitate a customer(s) long sale order on a riskless principal basis.”
This matches DiIorio’s explanations. “This is how KCG generates trading profits in penny stocks,” he said. “There is no such thing as riskless principal basis unless you’re doing something illegal.”
The customers facilitating KCG’s short sales by buying the stock long, DiIorio claimed, are typically high net-worth individuals operating through Swiss banks, using the trading activity as part of a scheme to launder money and evade taxes.
While this was particularly difficult for DiIorio to verify, a separate Finra disciplinary action completed just days ago against Swiss firm Credit Suisse faults the bank for failing to flag potential money laundering abuses based on “suspicious microcap stock transactions and sales of unregistered securities.” The trading at issue “followed patterns commonly associated with microcap fraud.”
This also fits with DiIorio’s story.In all, Finra identified 3,616 violations of Regulation SHO at KCG over the four-year period. The disciplinary action included “a censure,” a fine totaling $105,000, and the mandating of a written process to ensure future compliance with Regulation SHO within 60 days.
Oddly, it fell to Finra, an independent agency unrelated to the government, to enforce Regulation SHO — not the SEC, which implemented the rule and has oversight responsibility. Routine failures to deliver are supposed to lead to fines by the SEC, or even a ban from the securities markets. DiIorio has attempted to get the SEC interested in his claims for five years, to no avail. “The SEC outsourced this to Finra,” he said.
KCG did not announce the Finra settlement with a press release. Its most recent trading volume statement, for October, shows that the vast majority of its shares traded continue to be in the primary penny stock market exchanges, OTC Bulletin Board and OTC Market. Sophie Sohn, a spokesperson for KCG, said the company had no comment on the settleme