How DC insiders launder insider market information for the rich

We already know that Congresscritters make huge bank through insider trading, exploiting a loophole that lets them place bets on the stock market based on rules they have yet to announce. But this game-rigging con isn't limited to elected officials: a whole class of unregulated beltway insiders make their living by wheedling "political intelligence" (that is, insider information about upcoming regulations and laws) out of politicians and their staff, and then selling it on to consultants who package it up into legal insider trading recommendations for the hyper-rich.

The U.S. Government Accountability Office has released Financial Market Value of Government Information Hinges on Materiality and Timing, a 34-page report on this practice, trying to figure out how pervasive the scam is. They didn't get any great answers:

"The political intelligence industry is flourishing, enriching itself and clients in the stock market, yet the report notes that it could not document who these people are or how much they profit," [Craig Holman, government affairs lobbyist for government watchdog Public Citizen] said. "Without full transparency of the activity of these political intelligence consultants and their clients, it is nearly impossible to know if they are trading on illegal insider information."

Government Report Examines 'Political Intelligence,' But Questions Remain [Legal Times/Andrew Ramonas]

(Thanks, Alan!)

Paying patent trolls off makes you complicit in the next round of extortion

Joel Spolsky's editorial on patent trolls is fabulous. As he points out, the developers who pay relatively small sums to make patent trolls just go away are part of the problem, and complicit in the next round of extortion. Paying mobsters keeps them viable, and able to attack new victims:

In the face of organized crime, civilized people don’t pay up. When you pay up, you’re funding the criminals, which makes you complicit in their next attacks. I know, you’re just trying to write a little app for the iPhone with in-app purchases, and you didn’t ask for this fight to be yours, but if you pay the trolls, giving them money and comfort to go after the next round of indie developers, you’re not just being “pragmatic,” you have actually gone over to the dark side. Sorry. Life is a bit hard sometimes, and sometimes you have to step up and fight fights that you never signed up for.

Civilized people don’t pay up. They band together, and fight, and eliminate the problem. The EFF is launching a major initiative to reform the patent system. At Stack Exchange, we’re trying to help with Ask Patents, which will hopefully block a few bad patents before they get issued.

The Application Developers Alliance (of which I am currently serving as the chairman of the board) is also getting involved with a series of Developer Patent Summits, a nationwide tour of 15 cities, which will kick off a long term program to band together to fight patent trolls. Come to the summit in your city—I’ll be at the San Francisco event on April 9th—and find out what you can do to help.

The Patent Protection Racket (via Copyfight)

Porno-copyright trolls Prenda Law get hauled in front of a very angry judge

Popehat's Ken White attended a hearing in United States District Court Judge Otis D. Wright II's California courtroom. Judge Wright is the judge most likely to put a halt to the astounding shenanigans of the notorious porno-copyright trolls Prenda Law, who have been accused of lying to the court; blackmailing thousands of people with legal threats ("pay up or we'll file a lawsuit that will forever associate your name with pornography with an embarrassing title"); and, incredibly, stealing the identity of a humble caretaker and naming him the CEO of a semi-fictional company that allegedly hired the firm to make all those legal threats.

Judge Wright ordered all the parties to show up in his court yesterday -- the Prenda lawyers, the caretaker, defendants' lawyers, and more -- but not everyone obeyed his order. The main party in the courtroom was Brett Gibbs, a junior-seeming lawyer who appears to have been made bagman for a big con that he was only dimly aware of. White's writeup is somewhat sympathetic ("a young attorney out of his depth who fell in with the wrong crowd and made bad choices") but remember: he was a knowing part of a racket that terrorized thousands and thousands of people with what amounted to legal blackmail, where the demand came to "Guilty or innocent, you need to pay up or have your life ruined."

White is an excellent writer, and his account of the hearing is riveting. Now we're all waiting to hear what the judge's order will be. My guess is that it will go very badly for Prenda Law.

Brett Gibbs is in trouble. I buy him as a dupe here. Indeed, he admitted that "maybe" he felt duped. Yet though he pointed to Hansmeier and Steele as the decision-makers in this travesty, and disclaimed any knowledge of wrongdoing, he and his attorneys seemed oddly reluctant to throw Steele and Hansmeier all the way under the bus. It's more like he handed them a bus schedule and gave them a gentle shove in that general direction. Gibbs continued to argue that it wasn't clear until Cooper's testimony today that the Cooper signatures weren't genuine, a position that drew guffaws in the courtroom and an incredulous expression from Judge Wright. He and his attorneys seemed to want to suspend judgment about whether Prenda committed any misconduct at all -- a tactical error at this point, I think, and harmful to their credibility. The judge interrupted their closing arguing by asking pointedly whether a lawyer -- even if he is supervised by people out of state -- has an obligation to investigate facts himself. Ultimately, Judge Wright did not sound inclined to accept Gibbs' innocent stance.

Wright did not say, explicitly, what he would do about Steele, Hansmeier, Duffy, or the rest of the Prenda Law team. But when Pietz began laboriously to explain the basis for jurisdiction over each of them, Wright cut him short, suggesting that he found the evidence clear. (So, for the record, did I, given the evidence of Steele's contacts with California, Steele's and Hansmeier's supervision of Gibbs in California, and Duffy's substitution into cases in California and membership in the California bar. Their lack-of-jurisdiction argument is borderline frivolous.) I suspect, based on his comments, that Judge Wright will not let the consequences of this situation rest entirely on Gibbs' shoulders. What could he do? He could probably sanction the Prenda Law parties under his inherent authority based on their supervision of Gibbs. But I suspect Judge Wright will go further than that, with criminal referrals and messages to various state bars. There could also be further orders to show cause, or even bench warrants. Judge Wright didn't seem inclined to give them warning. But every indication is that they are in real legal peril.

There's been a lot of anticipation of today's hearing. The hearing lived up to it. It was a disastrous day for Prenda Law.

Deep Dive Analysis: Brett Gibbs Gets His Day In Court -- But Prenda Law Is The Star

Closer look at the scammy, awful contracts from Random House's new ebook imprints

Yesterday, I blogged about the awful contracts on offer from Random House's new Hydra imprint, which runs like a scam vanity-press, paying no advances, seizing all rights and charging normal publisher's operating costs to the author. John Scalzi's gotten ahold of the (presumably identical) contract for Alibi, the mystery/crime-book version of Hydra, and it really is awful.

The fact that Alibi is shifting those costs to the author is hugely significant, for reasons noted in the previous entry (i.e., Alibi is shifting an extraordinary portion of the risk of publishing onto the author’s back). But it’s also worrying to the author for two other reasons:

One, it puts the author in the hole to the Alibi for an amount which the author has almost no control over — it’s Alibi choosing how much to spend on the services and expenses which constitute the Net Billings. All the author is empowered to do (at least as I read the contract) is pay for them. It should be noted that Random House probably owns warehouses and printing presses (or has long-terms arrangements which represent sunk costs), so in effect the publisher will be charging the author for services it provides, i.e., it’s taking money from the author and putting it into its own pocket — payment for services publishers are supposed to provide as their part of the publishing equation. The contractual language does note that some expenses are to be “mutually-agreed” upon, but this just brings up another problem:

Two, it transfers the cost of these services onto the most ignorant partner in the contract — which is to say, the author. Yes, authors, I know. You are smart. But — can you tell me what “plant costs” mean? What about “conversion fees?” Can you give me a sum that you know with certainty to be in the ballpark, in terms of what those costs and fees should be? Do you know how much it costs to print and bind a book? Are you sure? Is Alibi printing them individually or in one large print run? How will that affect unit cost? What’s a reasonable sum for warehousing? You better know because the contract won’t tell you — or at least the one I have in front of me sure as hell doesn’t.

And here’s another thing to consider: When it’s the publisher fronting the costs for printing, warehousing, plant fees or whatever, it will, out of its own self-interest, they will try to lower the cost as much as possible, because not doing so will cut into its profits. But authors, when you are fronting the fees, the printing, warehousing, plant fees and everything else becomes a potential profit center for the publisher.

A Contract From Alibi

Random House launches ebook imprint that's run like a predatory vanity press

Writer beware. According to an email from the Science Fiction Writers of America, Random House has launched an imprint called "Hydra" with all the hallmarks of a sleazy, scammy vanity-press: no advance on royalties, perpetual, all-rights assignments of copyrights, and all production expenses charged to the writer before any royalties are paid.

SFWA has determined that works published by Random House’s electronic imprint Hydra can not be use as credentials for SFWA membership, and that Hydra is not an approved market. Hydra fails to pay authors an advance against royalties, as SFWA requires, and has contract terms that are onerous and unconscionable. Hydra contracts also require authors to pay – through deductions from royalties due the authors – for the normal costs of doing business that should be borne by the publisher. Hydra contracts are also for the life-of-copyright and include both primary and subsidiary rights. Such provisions are unacceptable. At this time, Random House's other imprints continue to be qualified markets.

This kind of rip-off is semi-standard with record deals, but it's unheard of in legit publishing, where the author typically receives an advance on royalties that is not refundable if it doesn't earn out; where authors traditionally assign a few, time-limited rights (English print/audio/ebook for a given territory, say); and where the production costs are wholly borne by the press in exchange for keeping the lion's share of any book revenue.

Hydra's deal is much, much worse than the one you'll get from a real DIY option like BookBaby or CreateSpace or Lulu, where you only pay for services you want, keep 100% of your profits, and assign no rights at all to the "publisher." It's got all the downsides of a DIY press, and all the downsides of a traditional press, and the upsides of neither.

Soccer match-rigging, straight out of a Gibson novel


Here's a brutal, must-read article from Brian Phillips detailing the bizarre, globalized game of soccer-match-rigging, which launders its influence, money and bets through countries all over the world, in what sounds like an intense, sport-themed LARP of a William Gibson Sprawl novel:

Right now, Dan Tan's programmers are busy reverse-engineering the safeguards of online betting houses. About $3 billion is wagered on sports every day, most of it on soccer, most of it in Asia. That's a lot of noise on the big exchanges. We can exploit the fluctuations, rig the bets in a way that won't trip the houses' alarms. And there are so many moments in a soccer game that could swing either way. All you have to do is see an Ilves tackle in the box where maybe the Viikingit forward took a dive. It happens all the time. It would happen anyway. So while you're running around the pitch in Finland, the syndicate will have computers placing high-volume max bets on whatever outcome the bosses decided on, using markets in Manila that take bets during games, timing the surges so the security bots don't spot anything suspicious. The exchanges don't care, not really. They get a cut of all the action anyway. The system is stacked so it's gamblers further down the chain who bear all the risks.

What's that — you're worried about getting caught? It won't happen. Think about the complexity of our operation. We are organized in Singapore, I flew from Budapest, the match is in Finland, we're wagering in the Philippines using masked computer clusters from Bangkok to Jakarta. Our communications are refracted across so many cell networks and satellites that they're almost impossible to unravel. The money will move electronically, incomprehensibly, through a hundred different nowheres. No legal system was set up to handle this kind of global intricacy. The number of intersecting jurisdictions alone is dizzying. Who's going to spot the crime? Small-town police in Finland? A regulator in Beijing? Each of them will only see one tiny part of it. How would they ever know to talk to each other? Dan Tan has friends in high places; extradition requests can find themselves bogged down in paperwork. Witnesses can disappear. I promise; you'll be safe. Who can prove you didn't see a penalty? We're fine.

Best part? Pro soccer is so corrupt that they don't give a damn, despite the fact that there is no game there, just a network of frauds that may exceed $1B:

Let me answer that question by referring you to the phrase that I hope will be your primary takeaway from this piece. Soccer. Is. Fucked. Europol announced the investigation Monday, leaving everyone with the impression that this was an ongoing operation designed to, you know, stop a criminal, maybe catch a bad guy or something. On Tuesday, multiple journalists reported that Europol is no longer pursuing the investigation. They've turned the information over to the dozens of prosecution services in the dozens of countries involved, which should keep things nice and streamlined. The man at the center of the whole story, the Singaporean mobster Tan Seet Eng, known as Dan Tan, has a warrant out for his arrest, but the Singaporeans won't extradite him and Interpol won't pressure them to do so.3 UEFA and FIFA talk about stamping out corruption, but, and I'll try to be precise here, FIFA rhetoric is to action what a remaindered paperback copy of Pippi in the South Seas is to the Horsehead Nebula. FIFA is eyeballs-deep in its own corruption problems, being run, as it is, by a cabal of 150-year-olds, most of them literally made out of dust, who have every incentive to worry about short-term profit over long-term change. They all have streets named after them, so how could they have a bad conscience? FIFA sees the game as a kind of Rube Goldberg device, or, better, as a crazed Jenga tower, and their job is to keep it standing as long as the money's coming in. Doesn't matter how wobbly it gets. Nobody look at the foundations.

Match-Fixing in Soccer [Brian Phillips/Grantland]

(via Schneier)

(Image: FIFA visita as obras da Arena Fonte Nova, a Creative Commons Attribution (2.0) image from agecombahia's photostream)

Looking for podcasters who've been shaken down by patent trolls

The Electronic Frontier Foundation is looking for podcasters who've received legal threats from Personal Audio, a patent troll that claims a bullshit patent on "disseminating a series of episodes represented by media files via the Internet." Cory

American insurers charge reckless rich drivers less than safe poor drivers

The Consumer Federation of America did a mystery shopper review of several auto insurers and found that drivers with at-fault accidents paid lower premiums than drivers with spotless records -- provided that the careless driver was rich and well-educated and the careful driver was a single renter without an advanced degree.

Using two hypothetical characters the group compared premiums offered to two 30-year-old women. Both had driven for 10 years, lived on the same street in a middle-income Zip code and both wanted the minimum insurance required by whichever state the group was researching.

The imaginary woman who wasn’t married, rented a home, didn’t have coverage for 45 days but has never been in an accident or ticketed with a moving violation was compared to a married executive with a master’s degree who owns her home and has always had continuous insurance coverage. But she’d been in an accident (again, hypothetically) that was her fault and caused $800 in damage within the last three years.

The results were somewhat surprising, although there were differences across the five insurers. Farmers, GEICO and Progressive always gave a higher quote to the safer driver than the woman who’d caused an accident. Across all 12 cities in the study, State Farm offered the lowest or second lowest premiums.

“State insurance regulators should require auto insurers to explain why they believe factors such as education and income are better predictors of losses than are at-fault accidents,” said J. Robert Hunter, CFA’s director of insurance and former Texas insurance

Consumer Group: The Rich May Pay Less For Car Insurance Even If They’re Not Safe Drivers [Consumerist/Mary Beth Quirk]

LARGEST AUTO INSURERS FREQUENTLY CHARGE HIGHER PREMIUMS TO SAFE DRIVERS THAN TO THOSE RESPONSIBLE FOR ACCIDENTS (PDF) [Consumer Federation of America]

The crazy world of engagement ring financing

Gerri Detweiler of credit.com has an article about sleazy engagement ring financing.

[H]ere is what some of the major jewelry stores are currently advertising. With all of these plans, if you make one late payment or fail to pay the balance in full during the promotional period, interest will be charged from the date of purchase — not from the date the promotional period ends.

Jared: 0% interest if paid in full within 12 months; up to 24.99%.

Kay Jewelers: 0% interest if paid in full within 12 months; up to 24.99%.

Shane and Company: 0% interest if paid in full in 6 months; 27.99%

Zales: 0% interest if paid in full in 6 months; 23.73% to 28.99%

While interest-free financing may work out fine if you are able to pay off the balance, it is risky if you aren’t able to come up with the cash to pay it off.

One more potential trap: Applying for one of the accounts will create an inquiry on your credit reports. Plus, if you accept the financing, you’ll have a new account with a balance listed on your credit reports, and that could potentially have a negative effect on your credit scores.

The crazy world of engagement ring financing

(Image: Life in the old dog yet, a Creative Commons Attribution (2.0) image from aldenchadwick's photostream)

Lionsgate commits copyfraud, has classic "Buffy vs Edward" video censored



Update: It's back up. McIntosh's YouTube comments says, "Three weeks after a bogus DMCA takedown by Lionsgate, I received a one line email from the YouTube team saying that my remix has been reinstated."
Jonathan McIntosh's "Buffy vs Edward" video is a classic: a mashup that's been viewed millions of times on YouTube, discussed in the halls of the US Copyright Office, and cited in a Library of Congress/Copyright Office report as an example of legal, fair use mashup.

But when Lionsgate bought out Summit Entertainment, the company that made the Twilight franchise, they started to aggressively "monetize" the remixes of the series online. That meant that they claimed ownership of them using YouTube's ContentID system, which would automatically place ads alongside all the video clips from the series -- including "Buffy vs Edward."

McIntosh objected to this. His video was fair use -- the Copyright Office itself said so -- and had never had ads placed in it. Lionsgate had no claim over it. He appealed to YouTube. YouTube punted to Lionsgate, who insisted that they were legally in the right. McIntosh hired a lawyer to write an letter explaining the fair use analysis to YouTube, who agreed, and reinstated the video, and Lionsgate (seemingly) dropped the claim.

But Lionsgate came back with another claim: the "audiovisual" elements in the video were fair use, but the "visual" elements were not (yeah, I know). McIntosh went through the process again, with the same result -- and so Lionsgate filed a complaint with YouTube that resulted in it being taken offline altogether.

McIntosh's correspondence with Lionsgate has been very unsatisfying. The company claims that since he refused to let them make money off of his creativity, they had "no choice" but to have it censored from YouTube. The company's representatives refuse to address the fair use claims at all.

Meanwhile, to add insult to injury, McIntosh had to complete an insulting "copyright education" course in order to continue using YouTube (even though he is an expert on fair use and had done no wrong), and is permanently barred from uploading videos longer than 15 minutes to the service -- all because of the repeated, fraudulent assertions made by Lionsgate.

In the past, companies that sent similar fraudulent takedowns to YouTube have faced penalties (remember EFF and the dancing baby versus Prince and Universal Music?). It would be an expensive and difficult proposition for McIntosh to bring Lionsgate to court for repeating the fraud, but let's hope that these copyfraudsters don't get off scot-free.

In the meantime, here's a really cool version of the video with annotations courtesy of Mozilla's popcorn.js tool.

Buffy vs Edward Remix Unfairly Removed by Lionsgate

Phrases used by corporate fraudsters

The FBI and Ernst and Young have released a list of top-ten phrases that indicate corporate fraud, based on data-mining evidence from real corporate fraud investigations.

In total more than 3,000 terms are logged by the technology, which monitors for conversations within the "fraud triangle", where pressure, rationalisation, and opportunity meet, said the FBI and Ernst & Young...

1. Cover up
2. Write off
3. Illegal
4. Failed investment
5. Nobody will find out
6. Grey area
7. They owe it to me
8. Do not volunteer information
9. Not ethical
10. Off the books

Top email terms used by corporate fraudsters published by FBI (via /.)

Chinese tourists say crooked NZ tour-operator took them to a "buffet" that was really a church soup-kitchen

Chinese tourists say a crooked tour-operator who'd promised them the best sightseeing in New Zealand and a buffet dinner instead took them to a bunch of public parks and then dumped them in the line at a soup-kitchen:

"I thought it was a real bargain, but the main reason we decided to go with him was because we thought it would be handy to have a local guide who spoke Mandarin," he said.

"I was shocked to find out later from media reports that the Christmas lunch was a charity lunch for the poor and homeless, and that most of the places we had been taken to were free and were not meant for tourists."

A TVNZ Christmas Day news report said Chinese tourists on organised tours were among the 2800 people at the Viaduct Events Centre for the annual charity lunch.

Chinese visitor says tour operator told him charity event was Govt treat. (Thanks, Juha!)

Buddy Holly's demo for "Words of Love"

Piglisi sez, "Experimenting with double-tracking his voice and guitar, Buddy Holly recorded a demo for a song he'd composed (by himself, despite his producer/manager taking half the songwriting credit). A scratchy acetate survives."

Buddy Holly - Words Of Love ('Echo Chamber Demo')

See also:

* Buddy Holly's first-ever recording, from 1949
* Rave On Buddy Holly: tribute album streaming now
* Buddy Holly's secretly recorded contract negotiation with Decca
* What was in Buddy Holly's plane-crash overnight bag?

Ukrainian steampunk mask-maker gets plagiarized by Skymall stalwarts Design Toscano


Update: Design Toscano has apologized for this and agreed to pay a royalty to Bob Basset. They blame an unscrupulous supplier who presented the design as its own.


Design Toscano, a wealthy, fast-growing company, is selling a leather steampunk mask that clearly plagiarises the work of Ukrainian leatherworker Bob Basset, a favorite around these parts. As Rob Murdoch points out in his post, Toscano could easily spare the budget to work with Basset to produce masks or designs for them -- the ethical thing to do. Basset, a poor artists living in Ukraine, feels powerless to do anything about it. This ugly business calls all of Toscano's products into question: are all the designs in their catalog unacknowledged rip-offs from independent designers, or just this one?

So having known and loved Bob’s work for 10 years at this point, imagine my happiness for him when I came across a sculpture of one of his masks being sold on this site. I thought “Great for Bob! More of his work is out there and it’s a great paying gig for him!” (Toscano is a multi-million dollar company so they can afford to pay their artists well and they often give credit to the artist). Then I had the horrible thought that maybe this isn’t good and it’s a case of a big company ripping off the little guy, which has happened before and will happen again so long as companies can get away with it. So I popped over to Bob’s personal Facebook page and linked him the online catalogue page with his mask and asked if he knew about it. An hour later, he replied with “Yes, I know they simply stolen our design. But what I can do from Ukraine I don’t know.”

So there you have it. There is no mistaking that the sculpture is a copy of Bob Basset work: his style is so unique. Not only was he not given credit for it, but he was not compensated at all for their using his mask. Now I hate to have to bring this to light because I have loved Design Toscano for years. I have a lot of fantastic statues and art from them lining my walls. But something has to be said. And you have to wonder, why did this happen? Toscano makes good money on the art they sell. They didn’t need to copy this work without compensation. Why not have approached the artist who made the masks they obviously liked and wanted to sell and commission a sculpture from him? Artists live or die by their sales. They need to be paid by people who want to make use of their work, and they need to be credited for their art.

Toscano's catalog copy is an exercise in chutzpah: "Get ready for a little anti-establishment, alternate history with our forward-thinking Steampunk gas mask that boasts a gramophone for hearing and no end of techno-Victorian charm!" They even call it a "Design Toscano Exclusive." Well, yes, they are the exclusive purveyor of the cheap knock-off.

Jaborwhalky Productions • Steampunk art stolen by Design Toscano? When you... (Thanks, Rob!)

Amazon Replacement Order Scam: anatomy of a social engineering con in action

Social engineering scams involve a mix of technical skills and psychological manipulation. Chris Cardinal discovered someone running such a scam on Amazon using his account: the scammer contacted Amazon pretending to be Chris, supplying his billing address (this is often easy to guess by digging into things like public phone books, credit reports, or domain registration records). Then the scammer secured the order numbers of items Chris recently bought on Amazon. In a separate transaction, the scammer reported that the items were never delivered and requested replacement items to be sent to a remailer/freight forwarder in Portland.

The scam hinged on the fact that Gmail addresses are "dot-blind" (foo@gmail.com is the same as f.oo@gmail.com), but Amazon treats them as separate addresses. This let the scammer run support chats and other Amazon transactions that weren't immediately apparent to Chris.

Others have reported on this scam, but word hasn't gotten around at Amazon yet, and when Chris talked to Amazon reps to alert them to the con, they kept insisting that his computer or email had been hacked, not understanding that the con artist was attacking a vulnerability in Amazon's own systems.

A little bit of sniffing finds this thread where users at a social engineering forum are offering to buy order numbers. Why? Because as it turns out, once you have the order number, everything else is apparently simple.

If you’ve used Amazon.com at all, you’ll notice something very quickly: they require your password. For pretty much anything. Want to change an address? Password. Add a billing method? Password. Check your order history? Password. Amazon is essentially very secure as a web property. But as you can see from my chat transcript above, the CSR team falls like dominoes with just a few simple data points and a little bit of authoritative prying.

Two-for-one: Amazon.com’s Socially Engineered Replacement Order Scam (via Hacker News)