Teens are a prime target for most social networks. Their numbers can boost a user base quickly, and they bring a lot of content with them. The trend has even been lampooned by The Onion. But minors — especially those under the age of 13 — have greater protections under the law, and it’s laws like these that have resulted in Yelp paying a $ 450,000 fine to the FTC.
A statement from the FTC outlines why Yelp was forced to pay the civil fine, along with mobile app developer TinyCo, which was fined $ 300,000. According to the FTC, the companies “improperly collected children’s information in violation of the Children’s Online Privacy Protection Act, or COPPA, Rule.”
The FTC has been using these rules for several years, and has prosecuted several companies for improper data collection. The core of the rules is that if a user declares himself to be under the age of 13, data points like their email addresses, real names and location cannot be stored by companies without explicit parental consent.
Yelp responded with its own statement saying “only about 0.02 percent of users who actually completed Yelp’s registration process during this time period provided an underage birth date, and we have good reason to believe that many of them were actually adults.” However Yelp has agreed to the fine, and says that it is updating its apps and services to bring them into compliance.
The COPPA rules only apply to users under the age of 13, but there have been arguments in the past that users 13- to 17-years-old are legally unable to consent to Terms of Service agreements. These types of complaints are likely to increase in the coming years, as ever greater numbers of younger and younger children find their way online.
“It is a compelling interest of this State to prohibit awarding government contracts to business entities which are also contributors to candidates, political parties and the holders of public office.” – New Jersey “pay to play” statute
As Pando has previously reported, New Jersey has some of the nation’s strongest anti pay-to-play and anti-corruption laws and rules. These aim to prohibit public pension contracts from being awarded to investment firms whose executives make financial contributions to politicians, election funds and political party organizations operating in the state. They are buttressed by SEC rules engineered to do the same thing.
Yet, despite all of these laws and rules, Pando has discovered evidence that Gov. Chris Christie’s administration awarded a public pension contract to a technology venture capital firm shortly after a partner at that same firm made a $ 10,000 contribution to the New Jersey Republican State Committee.
The firm involved is General Catalyst Partners which has backed tech companies like Snapchat, Kayak, Stripe and Warby Parker. Their website lists Charles Baker as an executive and partner. According to New Jersey campaign finance records, that same Charles Baker made the $ 10,000 contribution to the New Jersey Republican State Committee just months before the state’s contract with General Catalyst was proposed. When making the donation, Baker described himself as a Partner at the firm.
According to New Jersey records, the contribution came within the 18 month contribution moratorium set by New Jersey’s pay-to-play statutes and within the two year moratorium set by the New Jersey Treasury Department’s rules.
Additionally, Baker also helped organize a high-dollar fundraiser for Christie in 2013, according to news reports that Baker’s spokesperson later confirmed.
If all that wasn’t enough, there’s one more twist. If Baker’s name sounds familiar, it could be because he is not merely a financial executive: He is also the current GOP nominee in Massachusetts’ hotly contested 2014 gubernatorial election. According to the state’s Republican Party, he is running on a promise “to change the culture of corruption.”
The 2011 and 2013 timelines
In March of 2011, localnewspapers in Massachusetts reported that Charles Baker had become an “executive in residence” at Cambridge-based General Catalyst Partners. General Catalyst’s own website describes him as an “XIR/Partner.”
On March 2nd of that year, in an email quoted by newspapers and posted on Baker’s Facebook page, Baker announced: “I’ve accepted an offer to join General Catalyst,” said he is looking forward to the “chance to invest in and work with some energetic entrepreneurs,” and thanked the firm’s executives for “their willingness to invest in me.” A profile of Baker by Business Week says his focus was “on investing in mid-size firms primarily in the health care services industries.”
On May 17th 2011, roughly two months after the announcement that Baker was joining General Catalyst, New Jersey campaign finance records show that Charles Baker of General Catalyst Partners made a $ 10,000 contribution to the New Jersey Republican State Committee, listing himself as a partner in the firm.
On December 8th of 2011, the Christie administration’s Division of Investment issued a letter outlining its proposal to commit up to $ 25 million of state pension money to General Catalyst Partners. According to the latest available Division of Investment financial statements, the New Jersey pension fund began its investment in General Catalyst in January of 2012, has committed $ 15 million to the firm and currently has $ 8.3 million of pension money in the firm. Assuming the 2.5 percent management fee outlined in the original proposal is the going rate, that $ 8.3 million would generate General Catalyst more than $ 200,000 a year in compensation.
According to MassLive.com, in March of 2013, Baker was on the host committee for a $ 3,800-a-head fundraiser for Christie. The Newark Star-Ledger confirmed that in a February 2013 report noting that Christie “travels to Boston for a fundraiser organized in part by Ron Kauffman, a former adviser to Mitt Romney, and Charles Baker, who ran unsuccessfully for Massachusetts governor in 2010.” Baker’s spokesperson confirmed to Pando that “Charlie was among those serving as honorary hosts for the Christie fundraiser.”
Baker’s spokesperson confirmed to Pando that the Charles Baker making the campaign contributions and hosting the fundraiser for Christie is the same Charles Baker of General Catalyst.
Baker appears to have a close political relationship to Christie. During Baker’s first gubernatorial campaign, the Boston Herald reported that Christie visited Massachusetts to personally campaign for Baker. In fact, in an appearance on CNBC, Baker pledged to emulate Christie’s governing style. Meanwhile, the Boston Globe reports that Baker appeared with Christie in February of 2014 at a Republican Governors Association fundraiser.
What the laws and rules say
One statute, one set of state rules, and one set of federal rules all call into question the legality of the Christie administration’s contract between the state pension fund and Baker’s firm.
New Jersey Division of Treasury rules state that “the Division of Investment shall not engage an investment management firm to provide investment management services” if within two years prior “any political contribution or payment to a political party (has) been made or paid by… any investment management professional associated with such investment management firm.” The rules define “political party” as “any political party or political committee organized in this State,” which the New Jersey Republican State Committee and the Christie reelection campaign most certainly are.
The Division of Treasury rules also state that investment management professionals doing business with the pension fund “shall not… coordinate political contributions” with the term “political contributions” defined in the rules as including any “gift, subscription, loan, advance, or deposit of money or anything of value.” made “for the purpose of influencing any election for State office.” This raises questions about Baker hosting the March 2013 Christie fundraiser at the same time his firm was (and still is) contracted to manage up to $ 15 million of New Jersey pension money.
In terms of state statutes, New Jersey law bans any of the state government’s “purchasing agents or agencies or those of its independent authorities” from offering a contract to any “business entity” that has “made any contribution of money… to any State or county political party committee within the eighteen months immediately preceding the commencement of negotiations for the contract.” Baker’s contribution came seven months before the Christie administration released its pension investment proposal, and the law stipulates that its definition of “business entity” includes “natural or legal person(s).”
Finally, federal Securities and Exchange Commission rules state that it is “unlawful for an adviser itself or any of its covered associates to solicit or to coordinate… payments to a political party of a state or locality where the investment adviser is providing or seeking to provide investment advisory services to a government entity.” The rule also prohibits contributions from an adviser or “covered associates” to any “official of a government agency to which the investment adviser is seeking to provide investment advisory services.”
The SEC rule defines “covered associates” as “any general partner, managing member or executive officer” of a firm managing public pension money. General Catalyst’s website lists Baker as an executive in residence and a partner, suggesting both his contribution to the New Jersey State Republican Committee and his hosting a Christie campaign fundraiser may both be prohibited by the SEC rules.
In terms of what kinds of entities the rule applies to, SEC regulations say it applies to “exempt reporting advisers” registered with the SEC. The SEC website shows General Catalyst is registered as an exempt reporting adviser.
Baker’s spokesperson and General Catalyst chief respond with statements distancing Baker from General Catalyst
Despite General Catalyst’s website listing Baker as a partner “focus(ing) on investing in mid-size firms,” despite Baker listing himself as a partner on campaign finance records, despite Baker saying his General Catalyst move will allow him “to invest in and work with some energetic entrepreneurs” and despite the Boston Herald reporting on Baker “leading a $ 17 million funding round from General Catalyst Partners” – despite all of that, Baker’s campaign spokesperson responded to Pando insisting that Baker is not involved in General Catalyst investments.
“Charlie is in fact not an executive or employee of General Catalyst,” Baker spokesperson Tim Buckley wrote in an emailed statement to Pando. “He is not an investment professional, and has no involvement in managing or advising General Catalyst funds.”
Referring to the campaign finance document in which Baker listed himself as a partner in the firm, Buckley claimed that “Charlie must have errantly completed the form associated with the 2011 donation.”
Shortly afterwards, General Catalyst COO & CFO Bill Fitzgerald emailed a statement to Pando saying:
Charlie Baker has never been an executive, an employee or an investment professional of General Catalyst. Mr. Baker is part of General Catalyst’s “executive-in-residence” program. In the venture capital industry, executives-in-residence are persons who have been successful executives with operating businesses who are looking to become an executive or entrepreneur of another company, including one that the venture capital firm might invest in. Since early 2011, Mr. Baker has been Executive Chairman of a General Catalyst portfolio company. Mr. Baker is not involved in advising or managing the General Catalyst funds with regard to their investments.
The timetable provided by Fitzgerald and the assertion that Baker is not involved in General Catalyst’s investment work appears to be contradicted by a Boston Herald report on January 29, 2013. That report noted “Charlie Baker has been named chairman of the board of directors for Oceans Healthcare, after leading a $ 17 million funding round from General Catalyst Partners for the Louisiana-based behavioral health provider.” A Boston Globe article reports that, at General Catalyst, Baker has “done three deals in three years.”
More generally, it is worth noting that statements distancing Baker from General Catalyst were not included in March 2011 newspaper accounts of Baker’s move to General Catalyst. In fact, quite the contrary: General Catalyst has a link on its website promoting a Boston Globe story about “Baker joining venture capital firm.” The article explicitly describes Baker “joining Cambridge-based General Catalyst.”
Christie stays silent while legal experts cry foul
Pando on Thursday requested comment for this story from Gov. Christie’s office, the New Jersey Department of Treasury and the chairman of New Jersey’s State Investment Council. None of them responded to the requests for comment. However, others with intimate knowledge of the laws in question did.
In response to Pando’s reporting about Baker and the General Catalyst deal with the Christie administration, former SEC Chairman Arthur Levitt – the agency’s longest-serving chairman and the architect of the agency’s original pay-to-play law – said: “The spirit of the law has been violated by investment advisors giving contributions, followed by municipal investments in the funds they represent.”
Former Assistant United States Attorney Melanie Sloan, now executive director of the watchdog group Citizens for Ethics in Washington, said: “There is no two ways about it: Once Baker had contributed $ 10,000 to the NJ Republican State Committee, the state’s pay-to-play law and SEC regulations prohibited the state from investing with General Catalyst.”
Public Citizen’s Craig Holman, who has been involve in the crafting of New Jersey’s pay-to-play laws, told Pando that while it is theoretically possible Baker is not covered as a “business entity” under New Jersey’s statutes, the federal laws are broader.
“It appears to be illegal,” he said. “These are government contractors who are participating in campaign fundraising through groups that support various candidates for office including Gov. Christie. This would be a violation of the pay to play law.”
David Sirota is a staff writer for PandoDaily, television commentator and nationally syndicated weekly newspaper columnist living in Denver, Colorado. He is the author of the books “Hostile Takeover,” “The Uprising” and “Back to Our Future” and has written for The New York Times Magazine, Harper’s, Wired, Vice, The Nation and Salon.com. He covers the intersection of politics, technology and popular culture.