An Inquiry Into Tech Giants’ Tax Strategies Nears an End

Congressional investigators are wrapping up an inquiry into the accounting practices of Apple and other technology companies that allocate revenue and intellectual property offshore to lower the taxes they pay in the United States.

J. Scott Applewhite/Associated Press

Congressional investigators, led by Senator Carl Levin, a Michigan Democrat, have been interested in the impact on the budget deficit of offshore tax strategies.

The Senate Permanent Subcommittee on Investigations inquiry now drawing to a close began more than a year ago and involves at least a half dozen technology companies, according to people with firsthand knowledge of it, who declined to be identified.

Those people said the subcommittee had subpoenaed or otherwise asked the companies to explain methods they used to avoid domestic taxes. They said Apple had become a focus of the inquiry and was cooperating with the subcommittee, which is expected to issue wide-ranging recommendations that are likely to play a significant role in Congressional tax code negotiations.

Apple’s domestic tax bill has drawn the interest of corporate tax experts and policy makers because although the majority of Apple’s executives, product designers, marketers, employees, research and development operations and retail stores are in the United States, in the past Apple’s accountants have found legal ways to allocate about 70 percent of the company’s profits overseas, where tax rates are often much lower, according to corporate filings.

Apple, in a statement on Thursday, said the company was “one of the top corporate income taxpayers in the country, if not the largest.” The statement said the company “conducted all of its business with the highest of ethical standards, complying with applicable laws and accounting rules.”

It is unclear how broadly Senate investigators are looking into the technology industry, if any laws are thought to have been broken and how many companies are involved. The subcommittee is also known to be looking at Google, Hewlett-Packard, Microsoft and firms in such fields as biotechnology.

The subcommittee, which is overseen by Senator Carl Levin, a Michigan Democrat, has been interested in the impact on the budget deficit of offshore tax strategies. Representatives from Microsoft and Hewlett-Packard testified at a subcommittee hearing on the subject in September. Both companies were criticized sharply by Senator Levin for using intellectual property accounting rules to allocate revenue to other nations to avoid paying taxes in the United States.

“This subcommittee has demonstrated in hearings and comprehensive reports how various schemes have helped shift income to offshore tax havens and avoid U.S. taxes,” Senator Levin said at that hearing. “The resulting loss of revenue is one significant cause of the budget deficit, and adds to the tax burden that ordinary Americans bear.”Apple has long been a pioneer in developing innovative tax strategies that lessen its domestic taxes. At the September hearing, Senator Levin said the investigation indicated that Apple had deferred taxes on over $35.4 billion in offshore income between 2009 and 2011.

Tech companies are able to easily shift “intellectual property, and the profit that goes along with it, to tax havens,” said a former Treasury Department economist, Martin A. Sullivan, who has studied the company. “Apple went out of its way to try and ensure that its tax savings didn’t attract too much public attention, because tax avoidance of that magnitude — even though it’s legal and permissible — isn’t in keeping with the image of a socially progressive company.”

In its statement, Apple said it paid “an enormous amount of taxes” to local, state and federal governments. “In fiscal 2012 we paid $6 billion in federal corporate incomes taxes, which is 1 out of every 40 dollars in corporate income taxes collected by the U.S. government,” it said.In the 1980s, Apple was a pioneer of an accounting technique known as the “Double Irish With a Dutch Sandwich,” which reduces taxes by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean. Today, that tactic is used by hundreds of other corporations — some of which directly imitated Apple’s methods, say accountants at those companies. More recently, Apple has moved revenue to states like Nevada and overseas nations where the company pays less, or in some cases no, taxes.

Almost every major corporation tries to minimize its taxes. However, technology companies are particularly well positioned to take advantage of tax codes written for an industrial age and ill-suited to today’s digital economy.

Some profits at companies like Apple, Google, Amazon, Hewlett-Packard and Microsoft emerge from royalties on intellectual property, like the patents on software. At other times, products are digital, such as downloaded songs or movies. It is much easier for businesses with royalties and digital products to move profits to low-tax countries than it is, say, for grocery stores or automakers.

Although technology is now one of the nation’s largest and most highly valued industries, many tech companies are among the least taxed, according to government and corporate data. Over the last two years, the 71 technology companies in the Standard & Poor’s 500-stock index — including Apple, Google, Yahoo and Dell — reported paying worldwide cash taxes at a rate that, on average, was a third less than other S.& P. companies’, according to a New York Times analysis. (Cash taxes may include payments for multiple years.)

Companies report their cash outlays for income taxes in their annual Form 10-K, but it is impossible from those numbers to determine precisely how much, in total, corporations pay to governments.

This article has been revised to reflect the following correction:

Correction: January 3, 2013

An earlier version of this article included outdated information on Apple’s tax payments. The company paid $6 billion in federal corporate income taxes in fiscal year 2012; it did not pay $3.3 billion “last year.” (That was the amount of cash taxes the company paid in fiscal year 2011.)

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Saban, Kelly lead Bama and ND out of darkness

FORT LAUDERDALE, Fla. (AP) — There were some dark days at Notre Dame and Alabama, dark years really, during which two of college football's proudest programs flailed and foundered.

Notre Dame won the national championship in 1988, then spent much of the next two decades running through coaches — four if you count the guy who never coached a game — and drifting between mediocre and pretty good.

Alabama won the national championship in 1992, then spent the next 15 years running through coaches — four if you count the guy who never coached a game — and drifting between mediocre and pretty good.

As the 21st century dawned, the Fighting Irish and the Crimson Tide were old news, stodgy remnants of a glorious past, not moving fast enough to keep up with the times, and searching for someone to lead them back to the top.

"It parallels Notre Dame to a tee," said Paul Finebaum, who has covered Alabama as a newspaper reporter and radio show host for more than 30 years. "The attitude was 'We're Alabama. We don't have to do what others are doing. We'll win because of our tradition.' Finally everyone passed Alabama."

And Notre Dame.

Then along came Nick Saban and Brian Kelly to knock off the rust, fine tune the engines and turn the Crimson Tide and Fighting Irish into the sharpest machines in college football again.

No. 1 Notre Dame and No. 2 Alabama meet Monday night in Miami in a BCS championship between two titans not all that far removed from tough times.

"The pendulum swings," said former Alabama coach Gene Stallings, the last Tide coach before Saban to bring home a national title. "You don't stay good forever. You don't stay bad forever."

Of course, Alabama and Notre Dame fans aren't real comfortable with the first part of that statement. The Crimson Tide and Fighting Irish were perennial national championship contenders for decades.

For Alabama, replacing Bear proved difficult. Paul Bryant won six national championships in 25 years as the coach in Tuscaloosa, and when he stepped down the Crimson Tide felt compelled to bring back one of his boys to replace him. Ray Perkins was hired away from the New York Giants, and spent four years at Alabama before going back to the NFL.

Alabama tried going outside the family and hired Bill Curry. He lasted three years, before leaving for Kentucky.

"You follow somebody like Coach Bryant, it's an extremely difficult situation," Stallings said.

Stallings played for Bryant at Texas A&M, coached under him at Alabama and even sounded a bit like the Bear with his baritone drawl. He found success and relative peace in seven seasons as coach of the Tide.

"I told Coach Bryant stories. I wasn't in competition with Coach Bryant," Stallings said. "I think that's one of the reasons I was, quote, accepted by the Alabama people."

After Stalling left in 1996, things started to get ugly at Alabama. School leaders tried again to keep their most highly prized job in the family, hiring Mike DuBose, a former defensive lineman for Bryant. That didn't work, so Alabama swung the other direction by hiring Dennis Franchione, who skipped town after two seasons for Texas A&M, and Mike Price, who brought a whole new level of embarrassment to Alabama. Not long after he was hired away from Washington State, Price was fired after a night of drunken partying became public.

Alabama reverted back to old form, going with one of its own in former Tide quarterback Mike Shula. Like DuBose, he wasn't up to the task. On top of everything else, the NCAA slammed Alabama, wiping all its victories from the 2005 and '06 seasons off the books.

Meanwhile, over the years, Alabama had fallen behind others in the Southeastern Conference when it came to facilities and support staff. Big-time college football is an arms race of sorts, and the Crimson Tide weren't investing like the competition — like LSU had while winning a national title under Saban, for example.

"The program lost its compass," Finebaum said.

When it came time to hire another coach in 2006, Alabama courted Saban and Steve Spurrier. Spurrier wasn't interested and Saban had an NFL season to finish. When the Tide was turned down by Rich Rodriguez, who opted instead to stay with West Virginia, it was rock bottom.

"It was the darkest moment I can ever remember in Alabama history," Finebaum said. "Alabama fans gave up that day.

As it turned out, it was one of the best things to ever happen to Alabama.

"You've got to have some luck," Stallings said.

As luck would have it, Saban was ready to get back to college football.

Alabama lured him away from the NFL with a $4 million a year contract that made him the highest-paid coach in college football — and gave him the power and support to run the program the way he wanted, not the way it had been run before.

"Alabama finally hired someone who has not afraid to tell everybody to get out of the way," Finebaum said.

For Notre Dame, it is a similar tale. Lou Holtz won that championship in 1988 and made the Fighting Irish a regular title contender, but by the end of his tenure, Notre Dame started to slip and the people in charge were resistant to the types of changes needed to keep up with the competition.

The Irish promoted Bob Davie to take over for Holtz. In five seasons he never won more than nine games and went 0-3 in bowls.

Davie, now the coach at New Mexico, doesn't make excuses for his record at Notre Dame, but he does note that the school has been willing to make the type of changes in recent years that he sought back in the late 1990s.

"Their facilities have gone from being poor to cutting edge in college football," he said. "Their salaries for coaches are competitive with everybody in the country. They are accepting early graduates (from high school).

"I know the dynamics there very well and there's a lot of people who think you don't have to do that at Notre Dame. It's proven now that you do have to do those things."

Former athletic director Kevin White was the catalyst for many of those changes, but he was also the man who hired George O'Leary, who was caught fibbing on his resume and stepped down, Tyrone Willingham and Charlie Weis. The Weis hiring in 2004 was especially telling.

Notre Dame wanted Urban Meyer, who was then at Utah and the hottest commodity on the coaching market. Meyer worked at Notre Dame under Holtz and had called being Fighting Irish coach his dream job.

And he turned it down to coach Florida because he realized it would be easier to win national championship with the Gators than with the Irish. He won two with Florida in six years.

The Irish hired Weis, the New England Patriots' offensive coordinator who had never been a head coach but did graduate from Notre Dame. He was gone in five years.

This time when Notre Dame went looking for a coach, the hottest candidate on the market was Kelly, who climbed the coaching ladder slowly, winning big every step of the way. The difference was the hottest commodity also wanted Notre Dame, and White's successor, Jack Swarbrick, scooped him up quickly.

Kelly has continued to push Notre Dame into the 21st century, implementing a training table to make it easier for the players to eat healthy. He pushed for music to be pumped through the PA system at Notre Dame Stadium to rouse a fanbase that over the years had started to sit on its hands.

"It's flashier," Davie said. "They are a lot more like everybody else is but that's what's making them competitive."

Now what separates both Notre Dame and Alabama from the competition is their coaches.

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Scant Proof Is Found to Back Up Claims by Energy Drinks

Energy drinks are the fastest-growing part of the beverage industry, with sales in the United States reaching more than $10 billion in 2012 — more than Americans spent on iced tea or sports beverages like Gatorade.

Their rising popularity represents a generational shift in what people drink, and reflects a successful campaign to convince consumers, particularly teenagers, that the drinks provide a mental and physical edge.

The drinks are now under scrutiny by the Food and Drug Administration after reports of deaths and serious injuries that may be linked to their high caffeine levels. But however that review ends, one thing is clear, interviews with researchers and a review of scientific studies show: the energy drink industry is based on a brew of ingredients that, apart from caffeine, have little, if any benefit for consumers.

“If you had a cup of coffee you are going to affect metabolism in the same way,” said Dr. Robert W. Pettitt, an associate professor at Minnesota State University in Mankato, who has studied the drinks.

Energy drink companies have promoted their products not as caffeine-fueled concoctions but as specially engineered blends that provide something more. For example, producers claim that “Red Bull gives you wings,” that Rockstar Energy is “scientifically formulated” and Monster Energy is a “killer energy brew.” Representative Edward J. Markey of Massachusetts, a Democrat, has asked the government to investigate the industry’s marketing claims.

Promoting a message beyond caffeine has enabled the beverage makers to charge premium prices. A 16-ounce energy drink that sells for $2.99 a can contains about the same amount of caffeine as a tablet of NoDoz that costs 30 cents. Even Starbucks coffee is cheap by comparison; a 12-ounce cup that costs $1.85 has even more caffeine.

As with earlier elixirs, a dearth of evidence underlies such claims. Only a few human studies of energy drinks or the ingredients in them have been performed and they point to a similar conclusion, researchers say — that the beverages are mainly about caffeine.

Caffeine is called the world’s most widely used drug. A stimulant, it increases alertness, awareness and, if taken at the right time, improves athletic performance, studies show. Energy drink users feel its kick faster because the beverages are typically swallowed quickly or are sold as concentrates.

“These are caffeine delivery systems,” said Dr. Roland Griffiths, a researcher at Johns Hopkins University who has studied energy drinks. “They don’t want to say this is equivalent to a NoDoz because that is not a very sexy sales message.”

A scientist at the University of Wisconsin became puzzled as he researched an ingredient used in energy drinks like Red Bull, 5-Hour Energy and Monster Energy. The researcher, Dr. Craig A. Goodman, could not find any trials in humans of the additive, a substance with the tongue-twisting name of glucuronolactone that is related to glucose, a sugar. But Dr. Goodman, who had studied other energy drink ingredients, eventually found two 40-year-old studies from Japan that had examined it.

In the experiments, scientists injected large doses of the substance into laboratory rats. Afterward, the rats swam better. “I have no idea what it does in energy drinks,” Dr. Goodman said.

Energy drink manufacturers say it is their proprietary formulas, rather than specific ingredients, that provide users with physical and mental benefits. But that has not prevented them from implying otherwise.

Consider the case of taurine, an additive used in most energy products.

On its Web site, the producer of Red Bull, for example, states that “more than 2,500 reports have been published about taurine and its physiological effects,” including acting as a “detoxifying agent.” In addition, that company, Red Bull of Austria, points to a 2009 safety study by a European regulatory group that gave it a clean bill of health.

But Red Bull’s Web site does not mention reports by that same group, the European Food Safety Authority, which concluded that claims about the benefits in energy drinks lacked scientific support. Based on those findings, the European Commission has refused to approve claims that taurine helps maintain mental function and heart health and reduces muscle fatigue.

Taurine, an amino acidlike substance that got its name because it was first found in the bile of bulls, does play a role in bodily functions, and recent research suggests it might help prevent heart attacks in women with high cholesterol. However, most people get more than adequate amounts from foods like meat, experts said. And researchers added that those with heart problems who may need supplements would find far better sources than energy drinks.

Hiroko Tabuchi contributed reporting from Tokyo and Poypiti Amatatham from Bangkok.

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High and Low Finance: Lessons From Europe on Averting Disaster

Will the United States follow the European path in 2013?

Let’s hope so.

A year ago, the world’s markets were watching Europe with rising fear. Some expected 2012 to be the year that the euro zone broke up. Germany did not want to pay to bail out its less fortunate neighbors unless they agreed to severe austerity and to what amounted to a surrender of sovereignty — ideas that other countries were loath to accept.

What ensued during the year was a series of summit meetings that often seemed to do more for the hotel business in assorted European capitals than they did to solve the problem. Agreements in principle were announced, sending markets up, only to stumble back when the details got difficult.

What the naysayers missed was that there really was a common commitment to save the euro, and that in the end politicians and central bankers would do what was needed to avert disaster. Finally, in July, the European Central Bank came up with a plan that assured the euro area banks, and the troubled governments, that they would have access to money at reasonable rates. Angela Merkel, the German chancellor, went along, angering some of her German colleagues, who thought she was straying from basic principles.

So it could be in the United States Congress. The outgoing Congress went up to the final minutes, amid much angst, before it averted the fiscal crisis. There are reasons to grumble about the details, and more deadlines loom in the new Congress, but the essential point was that in the end the House Republicans allowed a bill to pass even though a majority of them opposed it.

John A. Boehner, the speaker who has often seemed scared to do anything that his Tea Party colleagues might oppose, not only allowed the vote but chose to vote for the proposal. The first indication of whether this is a new dawn, or simply a case of the House Republicans being outmaneuvered, could come when the debt ceiling is addressed. Logically, the debt ceiling is an absurd vote to begin with. Raising it simply allows the government to pay the bills for spending the Congress already approved. To allow the spending bills to pass, but to then refuse to raise the debt ceiling, is equivalent to a family’s deciding to refuse to pay the credit card bill while continuing to spend. That will only accomplish destruction of the family’s credit.

Perhaps some Republicans will threaten to keep the country from paying its bills to accomplish something they don’t otherwise have the votes to accomplish. But if the European precedent holds, the final result will at least avert disaster.

Whether more than that can be hoped for may depend in part on whether those screaming for major cuts in federal spending actually believe their rhetoric — the talk about the United States becoming another Greece.

The reality is that the current budget deficit largely reflects two things: exceptionally low government revenue and the continuing problems caused by the financial crisis and recession that followed the bursting of the housing bubble. Bringing tax revenue back to historical levels, as well as the growth in revenue and reductions in spending that will automatically follow an improving economy, will make a major difference.

There are issues that must be addressed regarding health care costs and Medicare, as well as the fact that there will be fewer workers for each retiree as the baby boomers retire. But those who see a Greek-type crisis here should ask themselves why the government can borrow at interest rates that remain extraordinarily low. The world’s trust in Uncle Sam’s ability to pay its debts has remained high.

What are not high are taxes, although a poll would no doubt show that many people think otherwise.

Federal taxes, relative to the size of the economy, are significantly lower than they were after Ronald Reagan cut them. During 2012 federal revenue amounted to around 17 percent of gross domestic product. At the Reagan low point, the figure was a full percentage point higher. In 2009, when the deficit was ballooning, the figure fell below 16 percent, something that had happened only once during the more than 60 years for which comparable data is available.

Back in 2000, federal revenue approached 21 percent of G.D.P. The assumption that such strong collections would continue played a major role in the forecasts of budget surpluses as far as the eye could see. In 2001, aides to President George W. Bush pointed to the figure as proof that Americans were overtaxed. It turned out that tax revenue figures were temporarily inflated in two ways by the bull market in technology stocks. Not only were there a lot of capital gains to be taxed, but soaring share prices also produced a lot of ordinary income for those employees and executives who could cash in stock options.

At the time, it was assumed that such options had no significant impact on tax revenue, because the income that went to the employee provided an offsetting tax deduction for the company that issued the options. That might have been true had the companies been paying taxes, but many of the most bubbly stocks were in companies that never had, and never would, pay a dollar in income taxes.

That revenue would have come down sharply after the technology stock bubble burst, even without the Bush tax cuts. But those tax cuts worsened the situation and are a major cause of the current deficits.

It might be interesting to consider what would have happened in the 2012 presidential campaign had either candidate been willing to, as Adlai Stevenson once said, “talk sense to the American people.”

In reality, neither candidate would have dreamed of saying, as an economist did a week ago: “Ultimately, unless we scale back entitlement programs far more than anyone in Washington is now seriously considering, we will have no choice but to increase taxes on a vast majority of Americans. This could involve higher tax rates or an elimination of popular deductions. Or it could mean an entirely new tax, such as a value-added tax or a carbon tax.”

It would have been only a little more likely to hear a candidate say, as another economist said after the fiscal deal was reached, “We need a tax system that can promote economic growth and raise the revenue the American people want to devote to government.”

The first quote came from a column in The New York Times by N. Gregory Mankiw, a Harvard economist. The second statement was made W. Glenn Hubbard, the dean of the Columbia University business school, who was chairman of the president’s Council of Economic Advisers when the Bush tax cuts were enacted. He went on to say, a Times article reported, that some Bush-era policies were no longer relevant to the task of tailoring a tax code to a properly sized government.

Mr. Mankiw and Mr. Hubbard were among the top economic advisers to Mr. Romney. If they advised him to make similar statements during the campaign, he did not take the advice.

“Fiscal negotiations might become a bit easier if everyone started by agreeing that the policies we choose must be constrained by the laws of arithmetic,” Mr. Mankiw added.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

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Mubarak Dictated Response to Protests in Cairo, Report Says

Ben Curtis/Associated Press

In January 2011, a protester was injured during clashes with security forces in Cairo.

CAIRO — Sitting in his palace in early 2011, as protests against him consumed Egypt, President Hosni Mubarak watched live video feeds of the demonstrations in Tahrir Square and the brutal response by his security forces, who used clubs, tear gas and live ammunition against civilians, according to a commission investigating deaths during the 18-day revolt and its aftermath.

The video was delivered on an encrypted channel to Mr. Mubarak and other top officials, along with detailed security reports. Facing the most severe challenge to his rule in three decades, and just days after protests had forced Tunisia’s autocratic president to flee his country, Mr. Mubarak authorized the use of any means to stop the demonstrations, his interior minister, Habib el-Adly, told the commission’s investigators.

“Mubarak knew everything, big and small,” Mr. Adly said, according to a commission member, Ali al-Gineidy. The group’s report, which was delivered on Wednesday to Mr. Mubarak’s successor, President Mohamed Morsi, has not been released to the public, but in recent days members have spoken about its findings.

The picture of Mr. Mubarak, 84, that has started to emerge from their comments — as a zealous watcher of the protests and the orchestrator of the crackdown — seems to contradict accounts by lawyers for the deposed president that he did not authorize the repression or know about the deaths. His court appearances after his ouster — in which he lay on a stretcher, wearing pajamas and sunglasses — and frequent reports of his ill health have reinforced his image as a detached, somewhat feeble leader.

In June, a court convicted Mr. Mubarak and Mr. Adly of being accessories to murder, but absolved them of more direct responsibility for the uprising’s casualties.

More than 800 people died during the uprising, and dozens more were killed during Egypt’s chaotic, military-led transition to civilian leadership. Only a few police officers are serving prison time in the killings, and hundreds of other officials have been acquitted. Human rights advocates hope the commission’s 700-page report will be a step toward breaking a culture of impunity that the revolt failed to crack. Even now, civilians are tortured by the security forces which the current Islamist government has taken no steps to reform.

Mr. Morsi appointed the 16-member commission in July, soon after he took office. The panel also investigated the deaths of protesters during the military-led transition period and found that soldiers had fired live ammunition at demonstrators, despite denials by military leaders.

In a telephone interview, Mohsin al-Bahnasi, a commission member, said enough evidence had been collected to convict members of the armed forces, although human rights advocates say that is unlikely because civilian courts have no power to try them.

In recent weeks, Mr. Morsi has called for top officials, including Mr. Mubarak and Mr. Adly, to be retried in the killings. On Wednesday, his office released a statement saying the public prosecutor would evaluate the commission’s findings.

Mr. Gineidy, who quit the commission before it submitted its report, praised its investigation but said its work had been jeopardized by Egypt’s judiciary, which has been unwilling to confront the security forces.

Mr. Gineidy said Mr. Morsi would have to “establish revolutionary courts or special circuits” to try perpetrators because many sitting judges, appointed by Mr. Mubarak, were still loyal to the old government.

The commission looked at evidence including Interior Ministry documents like weapons discharge reports and service orders that detailed security deployments, said Mr. Bahnasi, who gave a detailed interview about the report on Al Jazeera on Tuesday.

The commission recorded an interview with Mr. Adly in prison and spoke with officials with the Information Ministry, who told it about Mr. Mubarak’s video feeds.

The commission collected evidence that showed the authorities discussed covering up killings, including by quickly burying the bodies of victims. Interior Ministry documents showed that officers used machine guns and birdshot against the protesters.

Mr. Bahnasi said the commission also gathered evidence on the government’s widespread use of plainclothes thugs, who were commanded by senior officials of Mr. Mubarak’s political party and the Interior Ministry.

The government, Mr. Adly said, gave the thugs money and broken marble to attack the protesters.

On the rooftop of a hotel in Tahrir Square, military officers videotaped the protests, Mr. Gineidy said. The information minister arranged for the feeds to be piped to Mr. Mubarak and other officials. The government “recorded everything until the day he stepped down,” Mr. Bahnasi said on Al Jazeera.

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Pa. governor sues NCAA over Penn State sanctions

STATE COLLEGE, Pa. (AP) — Pennsylvania's governor, in a challenge to the NCAA's powers, claimed in a lawsuit Wednesday that college sports' governing body overstepped its authority and "piled on" when it penalized Penn State over the Jerry Sandusky child molestation scandal.

Gov. Tom Corbett asked that a federal judge throw out the sanctions, which include an unprecedented $60 million fine and a four-year ban on bowl games, arguing that the measures have harmed students, business owners and others who had nothing to do with Sandusky's crimes.

"A handful of top NCAA officials simply inserted themselves into an issue they had no authority to police under their own bylaws and one that was clearly being handled by the justice system," Corbett said at a news conference.

The case, filed under federal antitrust law, could define just how far the NCAA's authority extends. Up to now, the federal courts have allowed the organization broad powers to protect the integrity of college athletics.

In a statement, the NCAA said the lawsuit has no merit and called it an "affront" to Sandusky's victims.

Penn State said it had no role in the lawsuit. In fact, it agreed not to sue as part of the deal with the NCAA accepting the sanctions, which were imposed in July after an investigation found that football coach Joe Paterno and other top officials hushed up sexual-abuse allegations against Sandusky, a former member of Paterno's staff, for more than a decade for fear of bad publicity.

The penalties include a cut in the number of football scholarships the university can award and a rewriting of the record books to erase 14 years of victories under Paterno, who was fired when the scandal broke in 2011 and died of lung cancer a short time later.

The lawsuit represents a reversal by the governor. When Penn State's president consented to the sanctions last summer, Corbett, a member of the Board of Trustees, embraced them as part of the university's effort to repair the damage from the scandal.

Corbett said he waited until now to sue over the "harsh penalties" because he wanted to thoroughly research the legal issues and did not want to interfere with the football season.

The deal with the NCAA has been unpopular with many fans, students and alumni. Corbett, who is up for re-election next year, deflected a question about whether his response has helped or hurt him politically.

"We're not going to get into the politics of this," he said.

An alumni group, Penn Staters for Responsible Stewardship, applauded the lawsuit but said Corbett should have asked questions when the NCAA agreement was made.

"If he disapproved of the terms of the NCAA consent decree, or if he thought there was something illegal about them, why didn't he exercise his duty to act long before now?" the group said.

Paterno's family members said in a statement that they were encouraged by the lawsuit. Corbett "now realizes, as do many others, that there was an inexcusable rush to judgment," they said.

Corbett's lawsuit accuses the NCAA of cynically exploiting the Sandusky case, saying its real motives were to "gain leverage in the court of public opinion, boost the reputation and power of the NCAA's president" and "enhance the competitive position of certain NCAA members." It said the NCAA has not cited a rule that Penn State broke.

Corbett charged that the NCAA violated the Sherman Antitrust Act, which prohibits agreements that restrain interstate commerce. Legal experts called it an unusual case whose outcome is difficult to predict.

The NCAA has faced antitrust litigation before, with a mixed record of success. In 1984, the Supreme Court ruled against the NCAA's exclusive control over televised college football games. And in 1998, the Supreme Court let stand a ruling that said the NCAA's salary cap for some assistant coaches was unlawful price-fixing.

But federal courts have consistently rejected antitrust challenges to NCAA rules and enforcement actions designed to preserve competitive balance, academic integrity and amateurism in college athletics.

In this case, the courts might not be as sympathetic to the NCAA, said Matthew Mitten, director of the National Sports Law Institute at Marquette University Law School.

"It's difficult to justify the sanctions as necessary to protect the amateur nature of college sports, preserve competitive balance or maintain academic integrity," he said.

Joseph Bauer, an antitrust expert at the University of Notre Dame law school, said of Corbett's line of reasoning: "I don't think it's an easy claim for them to make, but it's certainly a viable claim."

Sandusky, 68, was convicted in June of sexually abusing 10 boys, some of them on Penn State's campus. He is serving a 30- to 60-year prison sentence but insists he's innocent.

Michael Boni, a lawyer for one of Sandusky's accusers, said he does not consider the lawsuit an affront. But he said he hopes Corbett takes a leading role in pushing for changes to state child-abuse laws.

"I really question who he's concerned about in this state," Boni said.

Michael Desmond, a businessman who appeared with Corbett at the news conference, said business at his five State College eating establishments was down about 10 percent during Penn State home game weekends this year.

"The governor's actions are going to be immensely popular with all Penn State alumni," Desmond said.

Corbett, a Republican, said his office did not coordinate its legal strategy with state Attorney General-elect Kathleen Kane, who is scheduled to be sworn in Jan. 15. Instead, the current attorney general, Linda Kelly, granted the governor authority to pursue the matter.

Kane, a Democrat, ran on a vow to investigate why it took prosecutors nearly three years to charge Sandusky. Corbett was attorney general when his office took over the case in 2009.

Kane had no comment on the lawsuit because she was not consulted about it by Corbett's office.

State and congressional lawmakers have objected to use of the NCAA fine to finance child-abuse prevention efforts in other states. Penn State has already made the first $12 million payment, and an NCAA task force is deciding how it should be spent.

___

Associated Press writers Peter Jackson in Harrisburg and Michael Rubinkam contributed.

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5-Hour Energy’s ‘No Crash Later’ Claim Is Disputed

The distributor of the top-selling energy “shot,” 5-Hour Energy, has long claimed on product labels, in promotions and in television advertisements that the concentrated caffeine drink produced “no crash later” — the type of letdown that consumers of energy drinks often feel when the beverages’ effects wear off.

But an advertising watchdog group said on Wednesday that it had told the company five years ago that the claim was unfounded and had urged it then to stop making it.

An executive of the group, the National Advertising Division, also said that 5-Hour Energy’s distributor, Living Essentials, had publicly misrepresented the organization’s position about the claim and that it planned to start a review that could lead to action against the company by the Federal Trade Commission.

“We recommended that the ‘no crash’ claim be discontinued because their own evidence showed there was a crash from the product,” said Andrea C. Levine, director the National Advertising Division. The organization, which is affiliated with the Council of Better Business Bureaus, reviews ad claims for accuracy.

The emerging dispute between Living Essentials and the National Advertising Division is unusual because the $10 billion energy drink industry is rife with questionable marketing. And Living Essentials, which recently cited the advertising group’s support in seeking to defend the “no crash” claim, may have opened the door to greater scrutiny.

Major producers like 5-Hour Energy, Red Bull, Monster Energy and Rockstar Energy all say their products contain proprietary blends of ingredients that provide a range of mental and physical benefits. But the companies have conducted few studies to show that the costly products provide anything more than a blast of caffeine, a stimulant found in beverages like coffee, tea or cola-flavored sodas.

The dispute over 5-Hour Energy’s claim also comes as regulatory review of the high-caffeine drinks is increasing. The Food and Drug Administration recently disclosed that it had received reports over the last four years citing the possible role of 5-Hour Energy in 15 deaths. The mention of a product in an F.D.A. report does not mean it caused a death or injury. Living Essentials says it knows of no problems related to its products.

The issue surrounding the company’s “no crash” claim dates to 2007, when National Advertising Division began reviewing all of 5-Hour Energy’s marketing claims. That same year, the company conducted a clinical trial of the energy shot that compared it to Red Bull and Monster Energy.

At the time, Living Essentials was already using the “No crash later” claim. An article on Wednesday in The New York Times reported that the study had shown that 24 percent of those who used 5-Hour Energy suffered a “moderately severe” crash hours after consuming it. The study reported higher crash rates for Red Bull and Monster Energy.

When asked how those findings squared with the company’s “no crash” claim, Elaine Lutz, a spokeswoman for Living Essentials, said the company had amended the claim after the 2007 review by the National Advertising Division. In doing so, it added an asterisklike mark after the claim on product labels and in promotions. The mark referred to additional labeling language stating that “no crash means no sugar crash.” Unlike Red Bull and Monster Energy, 5-Hour Energy does not contain sugar.

Ms. Lutz said that based on the modification, the advertising accuracy group “found all of our claims to be substantiated.”

However, Ms. Levine, the advertising group’s director, took sharp exception to that assertion, saying it mischaracterized the group’s decision. And a review of the reports suggested that Living Essentials had simply added language of its choosing to its label rather than doing what the group had recommended — drop the “no crash” claim altogether.

That review concluded that the company’s 2007 study had shown there was evidence to support a “qualified claim that 5-Hour Energy results in less of a crash than Red Bull and Monster” Energy. But it added the study, which showed that 5-Hour Energy users experienced caffeine-related crashes, was inadequate to support a “no crash” claim.

Ms. Levine said Living Essentials had apparently decided to use the parts of the group’s report that it liked and ignore others.

Companies “are not permitted to mischaracterize our decisions or misuse them for commercial purposes,” she said.

She said the group planned to notify Living Essentials that it was reopening its review of the “no crash later” claim. If the company fails to respond or provides an inadequate response, the National Advertising Division will probably refer the matter to the F.T.C., she said.

A Democratic lawmaker, Representative Edward Markey of Massachusetts, has asked that the agency review energy drink marketing claims.

Asked about the position of the National Advertising Division, Ms. Lutz, the 5-Hour Energy spokeswoman, stated in an e-mail that the “no sugar crash” language had been added to address the group’s concern.

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Debt Ceiling Clash Nears for Lawmakers

WASHINGTON — With the resolution of the year-end fiscal crisis just hours old, the next political confrontation is already taking shape as this city braces for a fight in February over raising the nation’s borrowing limit. But it is a debate President Obama says he will have nothing more to do with.

Even as Republicans vow to leverage a needed increase in the federal debt limit to make headway on their demands for deep spending cuts, Mr. Obama — who reluctantly negotiated a deal like that 18 months ago — says he has no intention of ever getting pulled into another round of charged talks on the issue with Republicans on Capitol Hill.

“I will not have another debate with this Congress over whether or not they should pay the bills that they’ve already racked up through the laws that they passed,” the president said Tuesday night after he successfully pushed Republicans to allow tax increases on wealthy Americans.

The president’s position is sure to appeal to his liberal allies, who fear another round of compromises by Mr. Obama. But it once again sets the stage for a nail-biting standoff that economists warn could lead to a damaging financial default and doubt from investors about the ability of the country to pay its obligations.

Moody’s, the rating agency, warned on Wednesday that the looming political battles over the nation’s debt could lower the group’s rating of American debt.

“We’re in for another round of brinkmanship and uncertainty,” said Mark Zandi, the chief economist at Moody’s Analytics, who predicted weeks of “angst, discussion and hand-wringing” in Washington. “I don’t think the economy can really find its footing and jump to a higher level of growth until we get to the other side of this.”

Joel Prakken, senior managing director of Macroeconomic Advisers, an economics forecasting firm, said bluntly, “This is kind of a mess.”

The financial imperative for an increase in the debt limit comes at a time of increasingly sour relations between the president and his Republican adversaries in the House. To secure a deal to avert automatic tax increases and spending cuts on Jan. 1, Mr. Obama was forced into last-minute talks with Senator Mitch McConnell of Kentucky, the Republican leader, after weeks of negotiations with Speaker John A. Boehner in the House collapsed amid acrimony and internal Republican dissension.

Now, the president and Mr. Boehner are both signaling a fresh round of take-it-or-leave it stands that are in sharp opposition: The president says increasing the borrowing limit is nonnegotiable, while Republicans say the House is all but certain to pass a bill that raises the debt limit only in exchange for significant cuts — a challenge to both Mr. Obama and the Democratic-controlled Senate.

Smarting from the president’s victory on taxes over the New Year’s holiday, Republicans in Congress are betting that their refusal to raise the $16.4 trillion debt ceiling will force Mr. Obama to the bargaining table on spending cuts and issues like changes in Medicare and Social Security.

But doing so would inevitably reprise the bitter debate over the debt ceiling that took place in the summer of 2011, when the government came close to defaulting on its debt before lawmakers and the president agreed to a 10-year package of spending cuts in exchange for Republican agreement to raise the debt ceiling by about the same amount.

And that is exactly what Republicans want — again.

“If they want to get the debt limit raised, they are going to have to engage and accept that reality,” said Brendan Buck, a spokesman for Mr. Boehner. “The president knows that.”

Senator Patrick J. Toomey, Republican of Pennsylvania, said flatly that his party should risk the possibility of default — including interruptions in federal benefit checks and paychecks for government workers — if it was the only way to compel the president to support deep spending cuts that will reduce the deficit.

“That’s disruptive, but it’s a hell of a lot better than the path that we’re on,” Mr. Toomey said Wednesday on MSNBC. “We absolutely have to have this fight over the debt limit.”

The Republican Party’s caucus in the House will discuss a debt ceiling strategy at a private retreat in Williamsburg, Va., this month, according to a top Republican aide, who said they were determined to insist again on spending cuts that equal the amount of increase in how much the country can borrow.

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In Hong Kong, Rival Protests Are Divided Over LeaderIn Hong Kong, Rival Protests Are Divided Over Leader

HONG KONG — Thousands of demonstrators in rival marches crowded through Hong Kong’s main shopping district on Tuesday to praise or condemn the city’s chief executive, who appears to retain the confidence of leaders in Beijing despite facing criticism here over a series of actions.

The New Year’s Day marches underlined deep political divisions in Hong Kong, a semiautonomous territory that Britain returned to Chinese rule in 1997.

Critics of the chief executive, Leung Chun-ying, accuse him of misleading the public on a controversial real estate issue, and of being a puppet installed by Beijing. Many of his critics also favor greater democracy for Hong Kong, where the chief executive is now chosen by a 1,200-member panel packed with Beijing loyalists; the general public elects half the legislature, while the other half is chosen by business leaders and other groups that also tend to follow Beijing’s wishes.

Mr. Leung’s backers, mainly organized by groups with lavish financial support from Beijing, contend that he is beginning to address deep-seated social issues here. They also tend to suggest that democracy is a Western concept that may not be compatible with local culture or with rapid economic development.

Supporters of Mr. Leung roughed up two local journalists at a separate rally on Sunday; many Beijing loyalists accuse Hong Kong journalists of being biased in favor of democracy.

But the events on Tuesday were largely peaceful. Organizers of two follow-up rallies in favor of Mr. Leung gave crowd estimates totaling 62,500, while a police spokeswoman put the figure at 8,560. Demonstrators seeking Mr. Leung’s resignation were more numerous, with rival groups of organizers providing estimates for a march and a separate rally totaling 142,000 people, while police estimates totaled 28,500.

Mr. Leung, who took office as chief executive on July 1, has faced heavy criticism for concealing during last winter’s election campaign that he had secretly expanded his $64 million home without receiving government planning permission or paying real estate fees due on the expansion.

Mr. Leung has been widely accused of hypocrisy because he won the election partly by criticizing his opponent, Henry Tang, for the unauthorized construction of a huge basement under a villa owned by Mr. Tang’s wife. That construction was also done without government planning permission, which is difficult to obtain, and without making a large payment to the government, which owns virtually all the land in Hong Kong and collects hefty lease payments based mainly on the square footage of developments.

Mr. Leung apologized this autumn for concealing his construction — he even built a false wall to hide his extension right before running for the territory’s top office. But he pointed out that he had not addressed his own compliance with Hong Kong real estate laws during the campaign.

“In fact, in my memory, I did not say I had no illegal structure,” he told the legislature.

Many Hong Kong residents blame growing immigration and tourism from mainland China for driving housing prices to unaffordable levels, for causing overcrowding in local schools and for making it harder for young people to find jobs. Mr. Leung has addressed these issues in his first six months in office by imposing steep taxes this autumn on short-term real estate investments by anyone who is not a permanent resident. He has also banned local hospitals, starting on New Year’s Day, from scheduling any more births for mainland mothers.

Continued support for Mr. Leung from Beijing makes it likely that he will remain in office. When the legislature took up a no-confidence measure three weeks ago, a majority of the lawmakers elected by the general public voted against Mr. Leung, but a majority of lawmakers representing business leaders and other social groups supported him. To pass, a majority of both groups was required.

In separate meetings with Mr. Leung nearly two weeks ago in Beijing, President Hu Jintao of China and Xi Jinping, who became the general secretary of the ruling Communist Party in November and is slated to become China’s next president in March, each said separately that they support Mr. Leung and his administration.

“You have a heavy workload and it is exhausting,” Mr. Xi said. “The central government affirms your work.”

Sprinkled among the protesters against Mr. Leung were a few people carrying the colonial Hong Kong flag that flew over the city during British rule. Beijing officials have asked Hong Kong residents not to display the flag, which they regard as a symbol of past foreign domination and humiliation of China.

Steveny Chan, a young woman who identified herself only as an office worker and carried a roughly 3-foot-by-2-foot colonial flag, said that she did not favor the return of Hong Kong to British rule. She said that she was displaying the flag as a nostalgic symbol of a time when the Hong Kong economy seemed to offer more opportunities for young people, and when Britain, before the return to China, was granting the people of Hong Kong growing autonomy.

“We’re missing the golden old days of Hong Kong,” she said.

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Thieves stole more than $1 million worth of Apple products during a New Years Eve heist

Title Post: Thieves stole more than $1 million worth of Apple products during a New Years Eve heist
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