S.E.C. Seeks to Penalize 2 Auditors in Bank Case

In its first case against auditors stemming from the financial crisis, the Securities and Exchange Commission on Wednesday took action against two KPMG employees who had given a clean audit opinion to a Nebraska-based bank holding company that later failed because of bad loans it had made to real estate developers in Nevada and Florida.

The S.E.C. asked an administrative law judge to bar John J. Aesoph, 40, a partner in the Omaha office of KPMG, and Darren M. Bennett, 35, a senior manager, for their roles in an audit of TierOne in 2008.

That included what the S.E.C. said was a failure to take steps to review the audit after evidence emerged that the auditors had been misled about whether the bank had taken large enough write-downs on the value of real estate development loans.

“Aesoph and Bennett merely rubber-stamped TierOne’s collateral value estimates and ignored the red flags surrounding the bank’s troubled real estate loans,” said Robert Khuzami, the commission’s enforcement director. “Auditors must adhere to professional auditing standards and exercise due diligence rather than merely relying on management’s representations.”

George S. Canellos, the deputy director of the division, said the case was “in keeping with our focus on the important responsibility of gatekeepers” who fail to do their jobs properly.

He pointed to a case filed last month against eight former directors of Morgan Keegan mutual funds, who were charged with failing to prevent fund managers from overvaluing fund assets during the financial crisis.

Lawyers for Mr. Aesoph and Mr. Bennett did not comment on the case, but KPMG issued a statement saying, “Our partner and senior manager look forward to presenting the facts in support of the work that was performed under the circumstances at TierOne.” A KPMG spokesman said Mr. Aesoph and Mr. Bennett remained at the company.

TierOne was a savings bank that focused on its home markets in Iowa, Kansas and Nebraska until it began to look for faster growing markets and opened loan production offices in Arizona, Colorado, Florida and Nevada. Loans to developers grew in those markets, leaving the bank exposed when property values began to plummet.

In 2008, TierOne closed those offices and wrote down the value of some of its largest loans. But the S.E.C. said that in doing so, the bank had not acted rapidly enough, particularly with regard to Nevada loans.

It said the auditors should have noted numerous red flags, including the fact that the few new appraisals that were done showed management had underestimated the expected losses.

It noted that the auditors had signed off on the financial statements even after the Office of Thrift Supervision, the bank’s primary regulator, warned of serious problems.

In 2010, the bank failed and was taken over by the Federal Deposit Insurance Corporation, which estimated its losses would be $298 million, or about 10 percent of total assets. The F.D.I.C. has since revised the estimate to $212 million.

KPMG, one of the largest audit firms in the world, was not named as a defendant in the case, which may reflect the S.E.C.’s lack of possible remedies as much as it does a view of the firm’s actions.

Under the law, the S.E.C. does not have the authority to levy financial penalties on auditors who fail to do their jobs. It can only suspend or bar them from practicing before the commission, a penalty that would prevent them from having any role in accounting or auditing the books of a public company.

Taking such a step against KPMG would be tantamount to putting it out of business, something the commission would not want to do in any but the most extreme circumstances.

The commission previously filed charges against three former officials of TierOne, two of whom settled and one of whom is fighting it in federal court in Omaha.

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IHT Rendezvous: Rescuing China's Bears from Bile Farms, One by One

BEIJING — Some had wounded faces and bloodied paws. Some were angry after years of mistreatment.

But six Asiatic black bears now have a chance at a life of dignity after being rescued on Wednesday from a Chinese bile farm by Animals Asia, an animal rights group, and the Chinese government’s State Forestry agency.

The bear rescue will continue for a few days as the animals are settled into their new home at a shelter outside Chengdu, the capital of Sichuan province, which now houses nearly 150 bears, You can follow it on Animals Asia’s Twitter feed with the hashtag #newyearrescue.

Here’s a latest tweet:

Today’s story is a happy one, though it’s part of the bigger, sadder picture of how thousands of bears are “farmed” for their bile here in China, often in excruciatingly painful conditions. Some are caged as cubs, and grow up crooked; physical injury and emotional trauma is the norm.

Rendezvous readers have debated passionately about bear bile farming before. It’s common in China and Vietnam, where it is illegal. While the Chinese government is taking action against some bear farms, it’s not illegal here if farms have licenses for it. About 10,000 bears are believed to be caged for their bile in China and a couple thousand in Vietnam. It’s a lucrative trade, with bile prized by the Chinese traditional medicine industry for a range of cures. As my former colleague, Mark McDonald, summed it up:

“Bear bile is prized in traditional Chinese medicine for its alleged ability to relieve muscle aches, joint pains, fever, migraines and hangovers, as well as being a curative for impotence, gallstones, cirrhosis, even cancer. Synthetic compounds are just as effective for many of these ailments, but many Asians, especially Chinese and Vietnamese men of a certain age, favor fresh bile.”

Your consensus, readers, was that it’s a horrific practice, despite arguments made by the Chinese traditional medicine industry that bile farming is “humane,” as Fang Shuting, the head of the Chinese Association of Traditional Chinese Medicine, said: “The process of extracting bear bile is like turning on a tap: natural, easy and without pain,’’ Mr. Fang said. “After they’re done, the bears can even play happily outside. I don’t think there’s anything out of the ordinary! It might even be a very comfortable process!”

As Mark wrote: “Wildlife biologists vehemently disagree, saying the needle sticks, catheterization and repeated draining of the gall bladder creates infections and leakage, which can lead to peritonitis and septicemia. ‘An excruciating death,’’ said one scientist.”

Revulsion is growing among ordinary Chinese, too. “I don’t believe it at all that extracting bile is as easy and comfortable as Fang said. Why doesn’t he extract the bile from his body in the same way to prove it?” one wrote on Sina Weibo, the microblog site, Mark reported.

But today I want to tell you about a spot of light in the night.

Here’s what a journalist who witnessed a bear arriving at the rescue wrote:

“The Asiatic black bear gave a deep growl and struggled in a rusty cage only just bigger than her giant body, as rescue workers from the Animals Asia bear sanctuary fed her fruit to soothe her shattered nerves, and examined her body for signs of sores or bleeding.” (Full disclosure — this reporter is my husband, Clifford Coonan, the Irish Times China correspondent.)

Jill Robinson, the founder of Animals Asia, was there, organizing and watching.

“What we have here are six highly traumatised bears from an illegal bear bile farm here in Sichuan province,” Clifford quoted her as saying. “One of the bears has bile leakage, and others have the stereotypical head injuries from bashing the bars of their cages. But it’s such a relief to have them here.”

Around the world, on Twitter and through video, people were watching, too.

Here’s a tweet from the actor Peter Egan, of “Downton Abbey” and “A Perfect Spy” fame, and an animal rights supporter.

As a member of Animals Asia wrote in an email to Rendezvous: watching the bears arrive “was exciting and sad in equal measure.” Exciting because it was the start of a new life for six; sad, because they need treatment and help, and because there are so many more out there.

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Delegation to North Korea Urges More Access to Internet and Cellphones

PYONGYANG, North Korea (AP) — A private delegation to North Korea that includes Google’s executive chairman, Eric E. Schmidt, is urging North Korea to allow more open Internet access and cellphones, although it is unclear how that message is being heard by a leadership that has long depended on a near-total ban on outside information to maintain its totalitarian rule.

David Guttenfelder/Associated Press

Eric E. Schmidt, Google’s executive chairman, standing center, with Bill Richardson, standing right, and North Korean soldiers Wednesday at the Grand People’s Study House in Pyongyang.

Bill Richardson, the former New Mexico governor leading the delegation, said Wednesday in an interview in Pyongyang, the North’s capital, that his nine-member group had also called on North Korea to put a moratorium on missile launchings and nuclear tests that have prompted United Nations sanctions.

He said the group had also asked for “fair and humane treatment” for Kenneth Bae, a naturalized American citizen born in South Korea who was detained by the North in November and charged with unspecified “hostile acts.”

The delegation’s visit has been criticized as appearing to hijack United States diplomacy and bolster North Korea’s profile after its latest, widely condemned rocket launching less than a month ago.

The State Department characterized the trip as unhelpful at a time when the United States is rallying support for sanctions by the United Nations Security Council as a response to the launching.

North Korea has shown no inclination to back off its nuclear program or to stop the launchings that it depicts as needed to send satellites into orbit, but that Western countries believe are tests for technology to create missiles that could eventually be used to deliver nuclear weapons.

Mr. Schmidt is the highest-profile American business executive to visit North Korea since Kim Jong-un took power a year ago. A vocal proponent of Internet freedom and openness, Mr. Schmidt has not said publicly what he hopes to get out of the visit. On Wednesday, he toured the frigid brick building in central Pyongyang that was presented as the heart of North Korea’s computer industry, at one point briefly donning a pair of 3-D goggles.

Mr. Kim has emphasized the importance of computerizing factories, many of which have fallen into disrepair in the years since the collapse of the former Soviet Union deprived the country of its main provider of technology. But he also has vowed in recent weeks to crack down on the “enemy’s ideological and cultural infiltration,” apparently a reference to the growing flow of information over the border with China.

That flow has been driven in part by North Koreans who sneak into China to bring much-needed food and goods back home, but who also bring back news of the outside world and sometimes DVDs and thumb drives containing banned South Korean dramas.

Mr. Richardson, who has described the delegation as a private humanitarian mission, said the members were bringing a message that more openness would benefit North Korea. Almost no one in the impoverished country owns computers, and even many of the computers that are allowed are not hooked up to the Internet, according to analysts who study the North. They say that even the small number of North Koreans allowed onto the Web — a group said to include party loyalists and computer science students — are severely restricted in what they can access.

On Tuesday, Mr. Schmidt, Mr. Richardson and other delegation members chatted with students who have permission to access the Internet for research at the elite Kim Il-sung University in Pyongyang.

On Wednesday, the group toured the main library in Pyongyang, the Grand People’s Study House, where people were crowded into drafty, unheated halls at computers with intranet access to the library’s archive of books, documents and newspapers.

Later, the delegation visited the Korea Computer Center, the hub of North Korea’s efforts to develop software, where a quote from the current leader’s father and predecessor as leader, Kim Jong-il, reads: “Now is the era for science and technology. It is the era of computers.”

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Americans Under 50 Fare Poorly on Health Measures, New Report Says

Younger Americans die earlier and live in poorer health than their counterparts in other developed countries, with far higher rates of death from guns, car accidents and drug addiction, according to a new analysis of health and longevity in the United States.

Researchers have known for some time that the United States fares poorly in comparison with other rich countries, a trend established in the 1980s. But most studies have focused on older ages, when the majority of people die.

The findings were stark. Deaths before age 50 accounted for about two-thirds of the difference in life expectancy between males in the United States and their counterparts in 16 other developed countries, and about one-third of the difference for females. The countries in the analysis included Canada, Japan, Australia, France, Germany and Spain.

The 378-page study by a panel of experts convened by the Institute of Medicine and the National Research Council is the first to systematically compare death rates and health measures for people of all ages, including American youths. It went further than other studies in documenting the full range of causes of death, from diseases to accidents to violence. It was based on a broad review of mortality and health studies and statistics.

The panel called the pattern of higher rates of disease and shorter lives “the U.S. health disadvantage,” and said it was responsible for dragging the country to the bottom in terms of life expectancy over the past 30 years. American men ranked last in life expectancy among the 17 countries in the study, and American women ranked second to last.

“Something fundamental is going wrong,” said Dr. Steven Woolf, chairman of the Department of Family Medicine at Virginia Commonwealth University, who led the panel. “This is not the product of a particular administration or political party. Something at the core is causing the U.S. to slip behind these other high-income countries. And it’s getting worse.”

Car accidents, gun violence and drug overdoses were major contributors to years of life lost by Americans before age 50.

The rate of firearm homicides was 20 times higher in the United States than in the other countries, according to the report, which cited a 2011 study of 23 countries. And though suicide rates were lower in the United States, firearm suicide rates were six times higher.

Sixty-nine percent of all American homicide deaths in 2007 involved firearms, compared with an average of 26 percent in other countries, the study said. “The bottom line is that we are not preventing damaging health behaviors,” said Samuel Preston, a demographer and sociologist at the University of Pennsylvania, who was on the panel. “You can blame that on public health officials, or on the health care system. No one understands where responsibility lies.”

Panelists were surprised at just how consistently Americans ended up at the bottom of the rankings. The United States had the second-highest death rate from the most common form of heart disease, the kind that causes heart attacks, and the second-highest death rate from lung disease, a legacy of high smoking rates in past decades. American adults also have the highest diabetes rates.

Youths fared no better. The United States has the highest infant mortality rate among these countries, and its young people have the highest rates of sexually transmitted diseases, teen pregnancy and deaths from car crashes. Americans lose more years of life before age 50 to alcohol and drug abuse than people in any of the other countries.

Americans also had the lowest probability over all of surviving to the age of 50. The report’s second chapter details health indicators for youths where the United States ranks near or at the bottom. There are so many that the list takes up four pages. Chronic diseases, including heart disease, also played a role for people under 50.

“We expected to see some bad news and some good news,” Dr. Woolf said. “But the U.S. ranked near and at the bottom in almost every heath indicator. That stunned us.”

There were bright spots. Death rates from cancers that can be detected with tests, like breast cancer, were lower in the United States. Adults had better control over their cholesterol and high blood pressure. And the very oldest Americans — above 75 — tended to outlive their counterparts.

The panel sought to explain the poor performance. It noted the United States has a highly fragmented health care system, with limited primary care resources and a large uninsured population. It has the highest rates of poverty among the countries studied.

Education also played a role. Americans who have not graduated from high school die from diabetes at three times the rate of those with some college, Dr. Woolf said. In the other countries, more generous social safety nets buffer families from the health consequences of poverty, the report said.

Still, even the people most likely to be healthy, like college-educated Americans and those with high incomes, fare worse on many health indicators.

The report also explored less conventional explanations. Could cultural factors like individualism and dislike of government interference play a role? Americans are less likely to wear seat belts and more likely to ride motorcycles without helmets.    

The United States is a bigger, more heterogeneous society with greater levels of economic inequality, and comparing its health outcomes to those in countries like Sweden or France may seem lopsided. But the panelists point out that this country spends more on health care than any other in the survey. And as recently as the 1950s, Americans scored better in life expectancy and disease than many of the other countries in the current study.

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Americans Under 50 Fare Poorly on Health Measures, New Report Says

Younger Americans die earlier and live in poorer health than their counterparts in other developed countries, with far higher rates of death from guns, car accidents and drug addiction, according to a new analysis of health and longevity in the United States.

Researchers have known for some time that the United States fares poorly in comparison with other rich countries, a trend established in the 1980s. But most studies have focused on older ages, when the majority of people die.

The findings were stark. Deaths before age 50 accounted for about two-thirds of the difference in life expectancy between males in the United States and their counterparts in 16 other developed countries, and about one-third of the difference for females. The countries in the analysis included Canada, Japan, Australia, France, Germany and Spain.

The 378-page study by a panel of experts convened by the Institute of Medicine and the National Research Council is the first to systematically compare death rates and health measures for people of all ages, including American youths. It went further than other studies in documenting the full range of causes of death, from diseases to accidents to violence. It was based on a broad review of mortality and health studies and statistics.

The panel called the pattern of higher rates of disease and shorter lives “the U.S. health disadvantage,” and said it was responsible for dragging the country to the bottom in terms of life expectancy over the past 30 years. American men ranked last in life expectancy among the 17 countries in the study, and American women ranked second to last.

“Something fundamental is going wrong,” said Dr. Steven Woolf, chairman of the Department of Family Medicine at Virginia Commonwealth University, who led the panel. “This is not the product of a particular administration or political party. Something at the core is causing the U.S. to slip behind these other high-income countries. And it’s getting worse.”

Car accidents, gun violence and drug overdoses were major contributors to years of life lost by Americans before age 50.

The rate of firearm homicides was 20 times higher in the United States than in the other countries, according to the report, which cited a 2011 study of 23 countries. And though suicide rates were lower in the United States, firearm suicide rates were six times higher.

Sixty-nine percent of all American homicide deaths in 2007 involved firearms, compared with an average of 26 percent in other countries, the study said. “The bottom line is that we are not preventing damaging health behaviors,” said Samuel Preston, a demographer and sociologist at the University of Pennsylvania, who was on the panel. “You can blame that on public health officials, or on the health care system. No one understands where responsibility lies.”

Panelists were surprised at just how consistently Americans ended up at the bottom of the rankings. The United States had the second-highest death rate from the most common form of heart disease, the kind that causes heart attacks, and the second-highest death rate from lung disease, a legacy of high smoking rates in past decades. American adults also have the highest diabetes rates.

Youths fared no better. The United States has the highest infant mortality rate among these countries, and its young people have the highest rates of sexually transmitted diseases, teen pregnancy and deaths from car crashes. Americans lose more years of life before age 50 to alcohol and drug abuse than people in any of the other countries.

Americans also had the lowest probability over all of surviving to the age of 50. The report’s second chapter details health indicators for youths where the United States ranks near or at the bottom. There are so many that the list takes up four pages. Chronic diseases, including heart disease, also played a role for people under 50.

“We expected to see some bad news and some good news,” Dr. Woolf said. “But the U.S. ranked near and at the bottom in almost every heath indicator. That stunned us.”

There were bright spots. Death rates from cancers that can be detected with tests, like breast cancer, were lower in the United States. Adults had better control over their cholesterol and high blood pressure. And the very oldest Americans — above 75 — tended to outlive their counterparts.

The panel sought to explain the poor performance. It noted the United States has a highly fragmented health care system, with limited primary care resources and a large uninsured population. It has the highest rates of poverty among the countries studied.

Education also played a role. Americans who have not graduated from high school die from diabetes at three times the rate of those with some college, Dr. Woolf said. In the other countries, more generous social safety nets buffer families from the health consequences of poverty, the report said.

Still, even the people most likely to be healthy, like college-educated Americans and those with high incomes, fare worse on many health indicators.

The report also explored less conventional explanations. Could cultural factors like individualism and dislike of government interference play a role? Americans are less likely to wear seat belts and more likely to ride motorcycles without helmets.    

The United States is a bigger, more heterogeneous society with greater levels of economic inequality, and comparing its health outcomes to those in countries like Sweden or France may seem lopsided. But the panelists point out that this country spends more on health care than any other in the survey. And as recently as the 1950s, Americans scored better in life expectancy and disease than many of the other countries in the current study.

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DealBook: After I.P.O. Drought, Brazil Is More Hospitable to Investors

SÃO PAULO, Brazil — The nation’s main stock exchange here forecast at the start of 2012 that 40 to 45 companies would hold initial public offerings to list their shares. Only three did.

“Very few transactions got done, and very few got done well,” said Fábio Nazari, head of equity capital markets at BTG Pactual. Many issuers encountered “very difficult conditions.”

Some of the lackluster performance can be chalked up to investors nervous about the global economy, but much also had to do with government policies in Brazil.

Last year, the country changed regulations and applied pressure to reduce consumer prices in several sectors, including retail banks and electricity utilities. Those measures may succeed in reducing consumer costs, but investors complained about lowered profit outlooks and accused the government of changing the rules in the middle of the game.

The government also used taxes and regulatory measures to weaken the currency in the first half of 2012. The value of the country’s currency, the real, fell more than 18 percent from March 1 to June 1, increasing uncertainty for foreign investors.

In Brazil, tough economic conditions also hung over the markets last year. In the first three quarters of 2012, the country’s gross domestic product rose only 0.7 percent. The Bovespa index was up 7.4 percent in 2012 — a healthy return but not the double-digit yearly gains it often had a few years ago.

Going into 2013, however, both government agencies and the private sector are taking steps to encourage start-ups and growth industries to raise financing through the public markets. In addition, analysts say, the most disruptive policy changes are already in place, so companies will find a more hospitable climate for stock offerings.

“We don’t foresee more big moves from the government,” Mr. Nazari said. “The past has been priced into valuations, and economic growth should pick up this year.”

Brazil has only 365 publicly traded companies, and they do not fully reflect the strength and diversity of the economy, the world’s seventh-largest. Commodities producers dominate the main stock index, even though industries that serve the country’s growing middle class are growing faster. But Mr. Nazari said at least 30 companies were ready to list in the next 12 to 18 months.

Two big stock offerings are already on tap to be listed on the BM&FBovespa, the main stock and futures exchange in Brazil.

Banco do Brasil, the state-controlled banking conglomerate, has announced that it intends to spin off its insurance operations into a new company, BB Seguridade, which would then hold an I.P.O. in the first half of 2013. The deal, if it goes through, could raise 5 billion reais.

And local investment banks say Votorantim Cimentos, Brazil’s largest cement producer, is preparing for an I.P.O. this year that would aim to raise 6 billion reais.

Investors may also turn to I.P.O.’s to seek better returns. After decades in which investors could buy short-term government bonds and earn double-digit returns, interest rates in Brazil have dropped. Most traditional fixed-income investments now hardly keep up with inflation.

Jean-Marc Etlin, chief executive of Itaú BBA Investment Bank, said that in an environment of relatively low interest rates, Brazilian investors had incentives to increase their stock market allocations, potentially creating demand for new companies.

Mr. Etlin also said there were thousands of Brazilian companies, mostly family owned, that could provide the basis for sustained activity.

“Brazil’s equity capital markets literally restarted just 10 years ago, with the first I.P.O. under new governance rules. We are still in the early stages,” he said.

Since Brazil’s first modern initial public offering in 2002, 70 percent of financing has come from foreign investors, so the market in the near term is dependent on global trends.

Brazil had a banner year in 2009, when companies raised nearly 46 billion reais on the public markets, according to the BM&FBovepsa (that figure includes I.P.O.’s and follow-on offerings, when companies issued additional shares). That year included I.P.O.’s of the bank Santander Brasil, which raised 13.2 billion reais, and the credit card operator Visanet, which raised 8.4 billion reais.

Renato Ejnisman, managing director of Bradesco BBI, Banco Bradesco’s investment banking division, said the market this year was not likely to return to 2009 levels, but “two or three times as many deals as in 2012 is pretty doable.”

Facundo Vazquez, head of Latin America equity capital markets at Bank of America Merrill Lynch, said foreign institutional investors preferred larger deals because they were more easily traded on the public markets, while risk-averse investors were more comfortable putting money into big companies that dominated their sectors.

Conglomerates looking to spin off units will be “the sweet spot,” he predicted, as such operations are big deals with plenty of liquidity from well-known companies.

Mr. Nazari of BTG Pactual also said that bigger offerings attracted more interest. “Right now, it is easier to do a $2 billion deal than a $200 million one,” he said. “A lot of investors are sitting on cash, waiting for the new year and for opportunities.”

The government itself is taking measures to facilitate listings, although more for smaller offerings. The Comissão de Valores Mobiliários, Brazil’s main securities regulator, announced in November that it would consider, on a case-by-case basis, easing requirements for smaller I.P.O.’s.

The equity arm of the state-owned development bank BNDES has 108 billion reais invested in nearly 400 companies, some of which are publicly traded giants like Petrobras, but most of which are privately held.

The BNDES, short for Banco Nacional do Desenvolvimento (or the National Development Bank in English), said in October that it intended to encourage or even oblige its start-ups and other companies to hold I.P.O.’s or at least join the exchange’s access tier, Bovespa Mais.

The Bovespa Mais requires companies to meet the same governance requirements as public companies and to go public, with at least 25 percent of their shares listed, within seven years.

Linx, a midsize software firm in which the BNDES holds a 21.7 percent stake, filed paperwork with regulators at the end of December to hold an I.P.O. this year. Linx is expected to try to raise 500 million reais.

Both government and private sector entities are also working together to present by March a package of regulatory and tax measures to pave the way for smaller I.P.O.’s, though the measures probably would not be in place until 2014.

In general, the change in regulations and investor demand could finally help end Brazil’s drought in I.P.O.’s, analysts said.

“In 10 years or less, we could easily see the number of listed companies in Brazil double,” said Mr. Nazari of BTG Pactual.

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Contractor Settles Case in Iraq Prison Abuse

WASHINGTON — An American contractor hired by the military to provide translation services for interrogators at the Abu Ghraib prison in Iraq has reached a $5 million settlement with scores of detainees who accused its employees of complicity in abusing them, according to financial disclosure documents.

The widespread abuse of prisoners held at Abu Ghraib by the United States military early in the Iraq war came to light in 2004, and was one of the key events that inflamed Iraqi public opinion against the American occupation.

A military inquiry eight years ago confirmed many instances of abuse and led to prosecutions and disciplinary actions against American soldiers and officers, but contractors were not charged.

The settlement was the first known instance of an American contractor making a payment over the abuse of prisoners in the Iraq war. A similar case against another contractor, filed by four other plaintiffs, is expected to go to trial in Maryland this year.

In the settlement, the contractor provided compensation to 71 Iraqi plaintiffs held at Abu Ghraib and elsewhere in Iraq.

Disclosure of the settlement, completed in October, came in a filing two months ago by Engility Holdings with the Securities and Exchange Commission, stating that “we and the plaintiffs agreed to resolve and dismiss the action in return for a payment of $5.28 million.”

A lawyer for the plaintiffs, Susan Burke, said that the settlement was under seal and that she was not allowed to discuss its terms. Company officials said Engility would not comment.

The company’s filing said the plaintiffs had claimed that employees of the Titan Corporation, later known as L-3 Services and spun off into Engility, “either participated in, approved of, or condoned the mistreatment of prisoners by United States military officials.”

The Associated Press first disclosed the filing, which it said had initially gone unnoticed.

The A.P. quoted Baher Azmy, the legal director of the Center for Constitutional Rights, which also represented the plaintiffs, saying, “Private military contractors played a serious but often underreported role in the worst abuses at Abu Ghraib.”

Previous lawsuits by Iraqi victims of the abuses at Abu Ghraib failed. A lawsuit by more than 250 prisoners against Titan and CACI International wound its way all the way to the Supreme Court, which declined to review a holding by a lower court in the District of Columbia that the companies had immunity as government contractors.

The new case, though, was filed in Federal District Court in Maryland and allowed to proceed. That led Engility to settle, although CACI has not done so. Engility estimates that its revenues last year were $1.6 billion, according to the company’s Web site. CACI, a military contractor, provided interrogation services at the prison.

The plaintiffs complained of “heinous acts” and torture at the hands of military and contractor personnel, including rape and sexual assault, beatings, forced nudity, humiliation and isolation.

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Chinese Man Pleads Guilty in Copyright Violation Case

Nearly five years ago, a Chinese man named Xiang Li registered several domain names, including www.crack99.com, and embarked on an ambitious, and ultimately illegal, venture.

Mr. Li, who was based in Chengdu, paid a network of computer experts to scour the Internet to find commercial software they could “crack,” meaning they bypassed security protocols designed to prevent unauthorized access or reproduction.

Ultimately, Mr. Li offered more than 2,000 pirated software products that could be used as applications in the military, engineering, space exploration, mathematics and explosive simulation, and sold them at a fraction of their retail price, which federal prosecutors said was over $100 million.

Among his biggest customers were an electronics engineer at NASA and the chief scientist at a government military contractor, but his clients also included students, inventors and small-business owners. Mr. Li sold the products for $20 to $1,200, accepting payments by Western Union and MoneyGram, according to government documents.

But Mr. Li’s criminal enterprise officially ended last year when he was arrested by undercover agents. On Monday, he pleaded guilty in Federal District Court in Delaware to one count of conspiring to steal copyrighted software. He faces a maximum of five years in prison.

Mr. Li, who is 36, could not be reached for comment, nor could his lawyer, Mingli Chen. Mr. Li’s wife, Chun Yan Li, was also indicted on charges of participating in the illegal scheme; she remains at large, presumably in China, officials said.

Mr. Li was arrested in June 2011 in Saipan in the Northern Mariana Islands during a meeting that had been arranged by undercover agents posing as American businessmen. The agents arranged the meeting under the guise of picking up their purchase of pirated software, design packaging and 20 gigabytes of proprietary data, and to discuss a plan to transmit cracked software over the Internet so they could resell it to small businesses in the United States.

After the arrest, agents recovered six disks from Mr. Li containing an assortment of data pirated from an unidentified American software company, including military and civilian aircraft image models and a software module containing data about the International Space Station.

Edward J. McAndrew, one of the prosecutors on the case, said Mr. Li’s arrest was among the largest criminal copyright cases to be successfully prosecuted by the government.

Mr. McAndrew and his colleague, David L. Hall, explained in court documents that once Mr. Li obtained cracked software, he would advertise it on his Web sites, which also included www.cad100.net and www.dongle-crack-download.com. Mr. Li’s customers would then wire him money, some of which he deposited in an account at the Bank of China. From February 2008 to June 2011, Mr. Li and his customers exchanged more than 25,000 e-mails about pirated products, according to the government, which obtained a search warrant for his Gmail account.

Mr. Li used his Gmail account to orchestrate more than 500 illegal transactions with customers in at least 28 states and more than 60 foreign countries, according to court documents. Software was pirated from more than 200 manufacturers.

Mr. McAndrew said none of the pirated software obtained by the undercover agents from Mr. Li contained classified material. But Mr. McAndrew said the government could not determine whether any classified material was distributed to other buyers since it did not have access to all the pirated products that Mr. Li sold.

One of Mr. Li’s biggest customers was Cosburn Wedderburn, a NASA electronics engineer, who bought 12 cracked software programs with a retail value exceeding $1.2 million. Another was Dr. Wronald Best, chief scientist at an unidentified government contractor that provides services to the United States military and law enforcement, like radio transmissions, microwave technology and vacuum tubes used in military helicopters. Dr. Best exchanged more than 260 e-mails with Mr. Li to obtain 10 cracked software programs, with a retail value of more than $600,000, prosecutors said.

Both Mr. Wedderburn and Dr. Best pleaded guilty to one count of conspiracy to commit criminal copyright infringement. Both are awaiting sentencing.

Starting in January 2010, undercover agents began buying pirated software from Mr. Li’s Web sites, receiving electronic files with the pirated software or hyperlinks that allowed the agents to download the software from servers in the United States.

In all, the agents paid the Lis $8,615 for the software.

For instance, in January 2010, the agents bought a pirated copy of Satellite Tool Kit 8.0, a software product from Analytical Graphics that has a retail value of more than $150,000. The software includes several functions used by the military and intelligence communities, including three-dimensional warfare simulations.

Mr. Li’s e-mails suggest he was aware of the illegality of his venture, prosecutors say. “I am not a crack production engineers (my job is to collect)(.) This is an international organization created to crack declassified document (s),” he said in a 2009 e-mail. In another he wrote, “I need to use your money to seek the help of experts to cracker master I earn 10 percent of the profits.”

One customer asked who did the cracking. “Experts crack,” Mr. Li wrote. “Chinese people. Sorry can not reveal more.”

Read More..

Economic Scene: Health Care and Pursuit of Profit Make a Poor Mix

Thirty years ago, Bonnie Svarstad and Chester Bond of the School of Pharmacy at the University of Wisconsin-Madison discovered an interesting pattern in the use of sedatives at nursing homes in the south of the state.

Patients entering church-affiliated nonprofit homes were prescribed drugs roughly as often as those entering profit-making “proprietary” institutions. But patients in proprietary homes received, on average, more than four times the dose of patients at nonprofits.

Writing about his colleagues’ research in his 1988 book “The Nonprofit Economy,” the economist Burton Weisbrod provided a straightforward explanation: “differences in the pursuit of profit.” Sedatives are cheap, Mr. Weisbrod noted. “Less expensive than, say, giving special attention to more active patients who need to be kept busy.”

This behavior was hardly surprising. Hospitals run for profit are also less likely than nonprofit and government-run institutions to offer services like home health care and psychiatric emergency care, which are not as profitable as open-heart surgery.

A shareholder might even applaud the creativity with which profit-seeking institutions go about seeking profit. But the consequences of this pursuit might not be so great for other stakeholders in the system — patients, for instance. One study found that patients’ mortality rates spiked when nonprofit hospitals switched to become profit-making, and their staff levels declined.

These profit-maximizing tactics point to a troubling conflict of interest that goes beyond the private delivery of health care. They raise a broader, more important question: How much should we rely on the private sector to satisfy broad social needs?

From health to pensions to education, the United States relies on private enterprise more than pretty much every other advanced, industrial nation to provide essential social services. The government pays Medicare Advantage plans to deliver health care to aging Americans. It provides a tax break to encourage employers to cover workers under 65.

Businesses devote almost 6 percent of the nation’s economic output to pay for health insurance for their employees. This amounts to nine times similar private spending on health benefits across the Organization for Economic Cooperation and Development, on average. Private plans cover more than a third of pension benefits. The average for 30 countries in the O.E.C.D. is just over one-fifth.

We let the private sector handle tasks other countries would never dream of moving outside the government’s purview. Consider bail bondsmen and their rugged sidekicks, the bounty hunters.

American TV audiences may reminisce fondly about Lee Majors in “The Fall Guy” chasing bad guys in a souped-up GMC truck — a cheap way to get felons to court. People in most other nations see them as an undue commercial intrusion into the criminal justice system that discriminates against the poor.

Our reliance on private enterprise to provide the most essential services stems, in part, from a more narrow understanding of our collective responsibility to provide social goods. Private American health care has stood out for decades among industrial nations, where public universal coverage has long been considered a right of citizenship. But our faith in private solutions also draws on an ingrained belief that big government serves too many disparate objectives and must cater to too many conflicting interests to deliver services fairly and effectively.

Our trust appears undeserved, however. Our track record suggests that handing over responsibility for social goals to private enterprise is providing us with social goods of lower quality, distributed more inequitably and at a higher cost than if government delivered or paid for them directly.

The government’s most expensive housing support program — it will cost about $140 billion this year — is a tax break for individuals to buy homes on the private market.

According to the Tax Policy Center, this break will benefit only 20 percent of mostly well-to-do taxpayers, and most economists agree that it does nothing to further its purported goal of increasing homeownership. Tax breaks for private pensions also mostly benefit the wealthy. And 401(k) plans are riskier and costlier to administer than Social Security.

From the high administrative costs incurred by health insurers to screen out sick patients to the array of expensive treatments prescribed by doctors who earn more money for every treatment they provide, our private health care industry provides perhaps the clearest illustration of how the profit motive can send incentives astray.

By many objective measures, the mostly private American system delivers worse value for money than every other in the developed world. We spend nearly 18 percent of the nation’s economic output on health care and still manage to leave tens of millions of Americans without adequate access to care.

Britain gets universal coverage for 10 percent of gross domestic product. Germany and France for 12 percent. What’s more, our free market for health services produces no better health than the public health care systems in other advanced nations. On some measures — infant mortality, for instance — it does much worse.

In a way, private delivery of health care misleads Americans about the financial burdens they must bear to lead an adequate existence. If they were to consider the additional private spending on health care as a form of tax — an indispensable cost to live a healthy life — the nation’s tax bill would rise to about 31 percent from 25 percent of the nation’s G.D.P. — much closer to the 34 percent average across the O.E.C.D.

A quarter of a century ago, a belief swept across America that we could reduce the ballooning costs of the government’s health care entitlements just by handing over their management to the private sector. Private companies would have a strong incentive to identify and wipe out wasteful treatment. They could encourage healthy lifestyles among beneficiaries, lowering use of costly care. Competition for government contracts would keep the overall price down.

We now know this didn’t work as advertised. Competition wasn’t as robust as hoped. Health maintenance organizations didn’t keep costs in check, and they spent heavily on administration and screening to enroll only the healthiest, most profitable beneficiaries.

One study of Medicare spending found that the program saved no money by relying on H.M.O.’s. Another found that moving Medicaid recipients into H.M.O.’s increased the average cost per beneficiary by 12 percent with no improvement in the quality of care for the poor. Two years ago, President Obama’s health care law cut almost $150 billion from Medicare simply by reducing payments to private plans that provide similar care to plain vanilla Medicare at a higher cost.

Today, again, entitlements are at the center of the national debate. Our elected officials are consumed by slashing a budget deficit that is expected to balloon over coming decades. With both Democrats and Republicans unwilling to raise taxes on the middle class, the discussion is quickly boiling down to how deeply entitlements must be cut.

We may want to broaden the debate. The relevant question is how best we can serve our social needs at the lowest possible cost. One answer is that we have a lot of room to do better. Improving the delivery of social services like health care and pensions may be possible without increasing the burden on American families, simply by removing the profit motive from the equation.

E-mail: eporter@nytimes.com;

Twitter: @portereduardo

Read More..

Economic Scene: Health Care and Pursuit of Profit Make a Poor Mix

Thirty years ago, Bonnie Svarstad and Chester Bond of the School of Pharmacy at the University of Wisconsin-Madison discovered an interesting pattern in the use of sedatives at nursing homes in the south of the state.

Patients entering church-affiliated nonprofit homes were prescribed drugs roughly as often as those entering profit-making “proprietary” institutions. But patients in proprietary homes received, on average, more than four times the dose of patients at nonprofits.

Writing about his colleagues’ research in his 1988 book “The Nonprofit Economy,” the economist Burton Weisbrod provided a straightforward explanation: “differences in the pursuit of profit.” Sedatives are cheap, Mr. Weisbrod noted. “Less expensive than, say, giving special attention to more active patients who need to be kept busy.”

This behavior was hardly surprising. Hospitals run for profit are also less likely than nonprofit and government-run institutions to offer services like home health care and psychiatric emergency care, which are not as profitable as open-heart surgery.

A shareholder might even applaud the creativity with which profit-seeking institutions go about seeking profit. But the consequences of this pursuit might not be so great for other stakeholders in the system — patients, for instance. One study found that patients’ mortality rates spiked when nonprofit hospitals switched to become profit-making, and their staff levels declined.

These profit-maximizing tactics point to a troubling conflict of interest that goes beyond the private delivery of health care. They raise a broader, more important question: How much should we rely on the private sector to satisfy broad social needs?

From health to pensions to education, the United States relies on private enterprise more than pretty much every other advanced, industrial nation to provide essential social services. The government pays Medicare Advantage plans to deliver health care to aging Americans. It provides a tax break to encourage employers to cover workers under 65.

Businesses devote almost 6 percent of the nation’s economic output to pay for health insurance for their employees. This amounts to nine times similar private spending on health benefits across the Organization for Economic Cooperation and Development, on average. Private plans cover more than a third of pension benefits. The average for 30 countries in the O.E.C.D. is just over one-fifth.

We let the private sector handle tasks other countries would never dream of moving outside the government’s purview. Consider bail bondsmen and their rugged sidekicks, the bounty hunters.

American TV audiences may reminisce fondly about Lee Majors in “The Fall Guy” chasing bad guys in a souped-up GMC truck — a cheap way to get felons to court. People in most other nations see them as an undue commercial intrusion into the criminal justice system that discriminates against the poor.

Our reliance on private enterprise to provide the most essential services stems, in part, from a more narrow understanding of our collective responsibility to provide social goods. Private American health care has stood out for decades among industrial nations, where public universal coverage has long been considered a right of citizenship. But our faith in private solutions also draws on an ingrained belief that big government serves too many disparate objectives and must cater to too many conflicting interests to deliver services fairly and effectively.

Our trust appears undeserved, however. Our track record suggests that handing over responsibility for social goals to private enterprise is providing us with social goods of lower quality, distributed more inequitably and at a higher cost than if government delivered or paid for them directly.

The government’s most expensive housing support program — it will cost about $140 billion this year — is a tax break for individuals to buy homes on the private market.

According to the Tax Policy Center, this break will benefit only 20 percent of mostly well-to-do taxpayers, and most economists agree that it does nothing to further its purported goal of increasing homeownership. Tax breaks for private pensions also mostly benefit the wealthy. And 401(k) plans are riskier and costlier to administer than Social Security.

From the high administrative costs incurred by health insurers to screen out sick patients to the array of expensive treatments prescribed by doctors who earn more money for every treatment they provide, our private health care industry provides perhaps the clearest illustration of how the profit motive can send incentives astray.

By many objective measures, the mostly private American system delivers worse value for money than every other in the developed world. We spend nearly 18 percent of the nation’s economic output on health care and still manage to leave tens of millions of Americans without adequate access to care.

Britain gets universal coverage for 10 percent of gross domestic product. Germany and France for 12 percent. What’s more, our free market for health services produces no better health than the public health care systems in other advanced nations. On some measures — infant mortality, for instance — it does much worse.

In a way, private delivery of health care misleads Americans about the financial burdens they must bear to lead an adequate existence. If they were to consider the additional private spending on health care as a form of tax — an indispensable cost to live a healthy life — the nation’s tax bill would rise to about 31 percent from 25 percent of the nation’s G.D.P. — much closer to the 34 percent average across the O.E.C.D.

A quarter of a century ago, a belief swept across America that we could reduce the ballooning costs of the government’s health care entitlements just by handing over their management to the private sector. Private companies would have a strong incentive to identify and wipe out wasteful treatment. They could encourage healthy lifestyles among beneficiaries, lowering use of costly care. Competition for government contracts would keep the overall price down.

We now know this didn’t work as advertised. Competition wasn’t as robust as hoped. Health maintenance organizations didn’t keep costs in check, and they spent heavily on administration and screening to enroll only the healthiest, most profitable beneficiaries.

One study of Medicare spending found that the program saved no money by relying on H.M.O.’s. Another found that moving Medicaid recipients into H.M.O.’s increased the average cost per beneficiary by 12 percent with no improvement in the quality of care for the poor. Two years ago, President Obama’s health care law cut almost $150 billion from Medicare simply by reducing payments to private plans that provide similar care to plain vanilla Medicare at a higher cost.

Today, again, entitlements are at the center of the national debate. Our elected officials are consumed by slashing a budget deficit that is expected to balloon over coming decades. With both Democrats and Republicans unwilling to raise taxes on the middle class, the discussion is quickly boiling down to how deeply entitlements must be cut.

We may want to broaden the debate. The relevant question is how best we can serve our social needs at the lowest possible cost. One answer is that we have a lot of room to do better. Improving the delivery of social services like health care and pensions may be possible without increasing the burden on American families, simply by removing the profit motive from the equation.

E-mail: eporter@nytimes.com;

Twitter: @portereduardo

Read More..