Oversight and Investigations Informer – July 21, 2022

What We Are Watching:

HAWLEY DEMANDS INVESTIGATION INTO SPR OIL RELEASE: U.S. Senator Josh Hawley (R-MO) sent a letter to Department of Energy Inspector General Teri Donaldson demanding she investigate President Joe Biden’s recent ongoing release of oil from the Strategic Petroleum Reserve (SPR) to foreign competitors, including China. New reporting has revealed that, as a result of Biden’s unprecedented release of oil from America’s emergency reserves, more than 5 million barrels of oil have already been shipped overseas to American competitors, draining the SPR to its lowest level since 1985.

LAWSUIT HITS ENERGY TRANSFER OVER PIPELINE SPILL: Energy Transfer’s parent company and a dozen of its executives have been hit with a shareholder suit alleging they concealed important information related to a pipeline spill, which led to federal investigations and a dip in stock price. Investor Gary Elliot on Thursday filed a derivative suit in Texas federal court on behalf of Energy Transfer LP alleging that the energy outfit’s parent company LE GP LLC and a dozen of its chief executives acted inappropriately over a period of several years. That behavior included hiring a company that performed horizontal drilling for a natural gas pipeline using unapproved additives in the drilling fluid, which ultimately led to a damaging spill and sharp public scrutiny, according to the complaint.

Keu Insights:  

“Throughout the course of the investigation, Energy Transfer, and individual defendants, fully aware of the gravity of their misconduct, made false and misleading statements and omissions regarding the severity of this legal proceeding in an attempt to conceal the truth from public investors,” Gary Elliot said, noting that some executives received millions in compensation during that time. His complaint also mentions that the energy company continued to release public disclosures that downplayed the severity of the resulting leak and a major investigation conducted by federal regulators.

What We Are Watching:

SENATORS INVESTIGATE ZELLE: Senators Elizabeth Warren (D-MA), Robert Menendez (D-NJ), Jack Reed (D-RI), Sherrod Brown (D-OH), Chris Van Hollen (D-MD), Sheldon Whitehouse (D-RI), Bernie Sanders (I-VT), and Tammy Duckworth (D-IL) sent a letter to the big banks behind the payments service Zelle. Zelle’s parent company Early Warning Services (EWS) is collectively owned by Bank of America, JPMorgan Chase, Capital One, PNC, Truist, U.S. Bank, and Wells Fargo. The Senators accused the banks of a failure to adequately protect consumers from widespread fraud on the platform. The group of senators had sent a letter in April 2022 to the banks on this issue but were unsatisfied with their response. In the new letter, the Senators wrote that the banks must answer a new set of questions and address “how consumers actually suffer financial loss on Zelle.” The banks must respond by August 8, 2022.

TREASURY REQUESTS COMMENT ON DIGITAL ASSETS: The U.S. Department of the Treasury released a notice seeking public comment on the potential opportunities and risks presented by the development and adoption of digital assets. The notice was required as part of a March 2022 Executive Order by President Biden to examine digital assets. Although the notice is a result of the executive order, the Treasury is encouraging interested parties to submit any relevant input, data, and recommendations on the effects of digital assets on U.S. financial markets and payment infrastructures. The comment period ends on August 8, 2022.

MICHAEL BARR CONFIRMED: On July 13, Michael Barr was confirmed in a 66-28 bipartisan vote by the Senate to be the Vice Chairman for Supervision at the Federal Reserve. It is the top banking regulator position. With Mr. Barr’s confirmation, the seven-member Board of the Federal Reserve is full for the first time since 2013. Mr. Barr was previously considered by President Biden as a possible nominee for Comptroller of the Currency, but his past connection to the fintech industry and allegations that he was too friendly to banks while helping the Obama administration develop Dodd-Frank sank his nomination among progressive Democrats.

Week Ahead:  

The House Committee on Financial Services will convene three hearings this week:

• A Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets hearing entitled “Oversight of the SEC’s Division of Enforcement” will be held on Tuesday, July 19 at 10:00am ET.
• A Subcommittee on Oversight and Investigations hearing entitled “Thoughts and Prayers Are Not Enough: How Mass Shootings Harm Communities, Local Economies, and Economic Growth” will be held on Tuesday, July 19 at 2:00pm ET.
• A Full Committee hearing entitled “Housing in America: Oversight of the Federal Housing Finance Agency” will be held on Wednesday, July 20 at 10:00am ET.

The Senate Committee on Banking, Housing, and Urban Affairs will convene two hearings this week:

• A Full Committee hearing entitled “Fairness in Financial Services: Racism and Discrimination in Banking” will be held on Tuesday, July 19 at 10:00am ET.
• A Subcommittee on Housing, Transportation, and Community Development hearing entitled “Opportunities and Challenges in Addressing Homelessness” will be held on Tuesday, July 19 at 2:30pm ET.

Key Insights:  

Recently, Rep. Carolyn Maloney (D-NY) and Sens. Cory Booker (D-NJ) and Elizabeth Warren (D-MA) held a press conference on a set of related bills they have introduced in the House and the Senate to eliminate or reduce overdraft fees. Similarly, Director Rohit Chopra of the Consumer Financial Protection Bureau (CFPB) has pledged to explore ways to limit overdraft fees. The issue will likely be raised in upcoming hearings this fall with the CEOs of major U.S. banks, who will be testifying in front of both the House Financial Services Committee and the Senate Banking Committee. However, with the midterms approaching and dim prospects for Democrats to hold both chambers, this hearing may be the last time for the party to raise the issue while in the majority.

What We Are Watching:

MERCK STOPS PROVIDING PHARMACEUTICALS TO 340B ELIGIBLE ENTITIES, SUES HHS OVER RELATED FINES: On Friday, July 8, 2022, pharmaceutical giant Merck sued the Biden administration in order to prevent incurring fines for stopping the provision of discounted pharmaceutical products to 340B Medicaid- and Medicare-enrolled safety net pharmacies. The drug manufacturer stated that the 340B program has been expanded too much and discounts are no longer beneficial to patients, while advocates for the program argue that it is essential for safety net providers. In their lawsuit, Merck cited that the statute does not contain language that prevents manufacturers from imposing conditions on offers of 340B-priced drug. The Health Resources and Services Administration (HRSA) has faced legal threats from other pharmaceutical companies, including Novartis and United Therapeutics, over similar restrictions to 340B contract pharmacies.

BIDEN ADMINISTRATION WARNS PHARMACIES THEY COULD FACE LEGAL CONSEQUENCES IF THEY REFUSE TO FILL REPRODUCTIVE HEALTH PRESECRIPTIONS: On Wednesday, July 13, the Biden Administration sent notices to roughly 60,000 U.S pharmacies nationwide, warning that failure to supply and distribute prescription drugs for reproductive health services would be viewed as a violation of federal civil rights laws. According to a press release from the U.S. Department of Health and Human Services (HHS), the guidance clarifies that under federal civil rights law, a pharmacy may not discriminate “in regard to supplying medications; making determinations regarding the suitability of a prescribed medication; or advising patients about medications and how to take them.” The announcement comes in response to reports of pharmacies refusing to fill some prescriptions for abortion-related drugs following the Supreme Court’s decision to overturn Roe v. Wade.

Week Ahead:

The House Oversight and Reform Committee Select Committee on the Coronavirus Crisis hearing entitled “Understanding and Addressing Long COVID and Its Heath and Economic Consequences” will be held on Tuesday, July 19 at 10:00am ET.

The House Energy and Commerce Committee, Oversight and Investigations Subcommittee hearing entitled “Roe Reversal: The Impacts of Taking Away the Constitutional Right to Abortion” will be held on Tuesday, July 19 at 10:30am ET.

The Senate Appropriations’ Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Subcommittee hearing entitled “Hearings to examine food safety and the Food and Drug Administration” will be held on Wednesday, July 20 at 10:00am ET.

The Senate Veterans’ Affairs Committee hearing entitled “Hearings to examine the status of VA’s electronic health record modernization program” on Wednesday, July 20 at 3:00pm ET.

Key Insights:  

The guidance issued by HHS on Wednesday is one of several abortion-related declarations the Administration has implemented in response to the Court’s decision that overturned Roe v. Wade last month. With the legality of abortion decided by states, the federal government is using current laws to demonstrate federal jurisdiction over state ordinances. The Affordable Care Act (ACA) and the Rehabilitation Act of 1973 are cited in the guidance to prohibit pharmacies that receive federal funding from discriminating based on personal views on contraception and abortion.

What We Are Watching:

TIKTOK RECEIVES GOP OVERSIGHT DOC REQUEST: Fox News reports that Republicans on the House Oversight and Energy & Commerce Committees sent TikTok an inquiry seeking documents related to user data privacy and data transfers to personnel in China. The Oversight Committee GOP also sent a letter to Treasury Secretary Janet Yellen requesting a briefing on CFIUS scrutiny and negotiations with the company to resolve national security concerns.

NET NEUTRALITY DEBATE DRIFTS TO CONGRESS: Unable to confirm Gigi Sohn as a fifth and deciding vote on the FCC, Senate Democrats appear poised to again propose classifying broadband service as a telecommunications service under heavier regulation using Title II of the Communications Act. In the congressional arena, this has traditionally been a divisive and oversight-heavy area full of theatrics.

What We Are Watching:

FDA ISSUES MORE THAN 100 WARNINGS OVER NEW SYNTHETIC NICOTINE LAW: The FDA said it has issued warnings to two manufacturers for marketing synthetic vaping products without authorization and sent 107 other warning letters to retailers for illegally selling such products to underage buyers in recent days. The Food and Drug Administration has moved to crack down on vaping companies that use non-tobacco nicotine products since a law designed to close a loophole that companies had exploited to avoid oversight of devices like e-cigarettes took effect in April. Brian King, director of the FDA’s Center for Tobacco Products, said in a statement the agency would “continue to investigate companies that may be marketing, selling, or distributing non-tobacco nicotine products illegally and will pursue action, as appropriate,” in the coming weeks.

INDUSTRY WARNS EPA ASBESTOS BAN WILL SPUR SUPPLY CHAIN WOES: Industry members concerned about a planned ban targeting one of the world’s most infamous carcinogens are pushing EPA to reconsider its crackdown. In a recent letter, a coalition of 32 industry groups called on the agency to halt its plans to ban the most common type of asbestos. Largely composed of chemical and manufacturing sector members, the groups argued that the ban would hit the chlor-alkali industry hard, impacting U.S. access to chlorine and other materials like solar panels and batteries for electric vehicles. “We encourage EPA to consider the impacts a severe and abrupt reduction in chlorine production would have on the supply chain and the economy as well as the unintended consequences of forcing chemical plants, refineries, power plants and pharmaceutical companies to close for extended periods of time to replace sheet and other gaskets,” they wrote.

MANCHIN, PLAYING TO THE HOME CROWD, IS FIGHTING ELECTRIC CARS TO THE END: Senator Joe Manchin III’s opposition to government incentives for electric vehicles is a sticking point in negotiations over President Biden’s tax and spending package — talks that appear to be coming to a head this week after months of fits and starts. Mr. Biden and most Senate Democrats want billions of dollars in tax credits for consumers who buy electric vehicles, which they see as key to fighting climate change. The transition away from polluting gas-powered cars and trucks is even more critical to the administration’s climate goals after a recent Supreme Court decision that curtailed the government’s authority to cut pollution from power plants.

Key Insights:

In the past week, the chemical industry pushback against the EPA’s proposed asbestos ban, as well as Sen. Manchin’s opposition to tax credits for electrical vehicle consumers, illustrates the considerations that lawmakers and industry groups are forcing the Biden administration to weigh when attempting to enact its environmental and climate agenda to ensure that the actions taken do not exacerbate the supply chain and inflationary woes that the country is currently facing. As these economic pressures persist, we expect to see more challenges to the administration’s environmental and climate actions that will employ similar economic rationale.