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The Associated Press reports:

Former U.S. Attorney for Minnesota Rachel K. Paulose retaliated against a top prosecutor in her office who reported her for careless handling of classified homeland security reports, a watchdog agency said Wednesday.

In announcing a whistleblower settlement between Assistant U.S. Attorney John Marti and the Justice Department, the Office of Special Counsel said its investigation found that Paulose retaliated by taking steps to remove Marti as her first assistant. Marti accepted a demotion and returned to being an assistant U.S. attorney.


In a news release, OSC said: "Based on considerable evidence of intent, animus, and motive, OSC concluded that Ms. Paulose constructively demoted Mr. Marti."

Paulose had earlier been the subject of an Office of Special Counsel investigation into whether she'd discriminated against office employees, including allegedly using the words "fat," "black," "lazy" and "ass" in remarks to one employee.

Before that, Marti and three other top lawyers in Paulose's office had voluntarily demoted themselves to protest her Christian-influenced managerial style.

Since last year, Paulose has been an adviser to Attorney General Michael Mukasey at main DOJ.

Looks like we may not have heard the last of Uncle Ted.

Politico reports:

Lawyers for convicted Sen. Ted Stevens (R-Alaska) told a federal judge today that they will soon file a motion seeking a new trial.

Stevens, who was defeated in a bid for a seventh full term, will ask Judge Emmet Sullivan to overturn his conviction on seven federal corruption counts for failing to disclose more than $250,000 in improper gifts.

Stevens' defense team raised numerous objections to the Justice Department's handling of his corruption trial, arguing that the government deliberately withheld potentially exculpatory information and witnesses during the proceedings.


A hearing is scheduled for next month in regard to claims by a witness that he was unofficially promised immunity by prosecutors in exchange for his testimony, and lied about it on the stand.

Several of Stevens' Senate colleagues have recently raised the possibility of asking President Bush to pardon the octogenerian lawmaker.

Looks like our old friends at Defense Solutions are back in the news.

You remember them. They're the Pennsylvania-based defense company that retained former GOP congressman Curt Weldon -- who's currently under investigation for corruption in regard to his ties to his daughter's lobbying firm -- as a strategic advisor.

Weldon recently pushed deals on behalf of Defense Solutions between Russian and Ukrainian weapons suppliers and the Iraqi and Libyan governments. Brokering such deals is legally murky, according to Wired magazine, because Libya and the Russian arms export agency are on U.S. blacklists.

And Defense Solutions' CEO, Tim Ringgold was accused by a Ukrainian government official of forging his name on a signed letter officiating that deal.

So we were interested to see the company make a special appearance this weekend in the long New York Times story on Ret. Gen. Barry McCaffrey's myriad conflicts of interest.

McCaffrey, the Times reports, was hired by Defense Solutions on June 15, 2007 to advocate for a similar arms deal. But he didn't mention that affiliation, says the Times, when he wrote a letter to General David Petraeus "strongly recommending Defense Solutions and its offer to supply Iraq with 5,000 armored vehicles from Eastern Europe. 'No other proposal is quicker, less costly, or more certain to succeed,' he said."

The paper continues:

Nor did he disclose it when he went on CNBC that same week and praised the commander Defense Solutions was now counting on for help -- "He's got the heart of a lion" -- or when he told Congress the next month that it should immediately supply Iraq with large numbers of armored vehicles and other equipment.


McCaffrey has had no luck so far getting the deal through for Defense Solutions, but they haven't given up hope yet - the Times reports that he is currently back advocating in Iraq on a trip sponsored by the Pentagon.

This morning, as we noted, the Washington Post reported that the prosecutor Nora Dannehy has met with defense lawyers and issued subpoenas, through a grand jury, in her investigation into criminal wrongdoing in connection with the US Attorney firings.

And it looks like Alberto Gonzales, the former Attorney General on whose watch the firings occurred, is among the people she's contacted.

In an interview with TPMmuckraker, Bob Bork Jr., who serves as a spokesman for the ex-AG, initially said that although Gonzales' lawyer, George Terwilliger III, had reached out to Dannehy at the start of her investigation, he didn't believe that Dannehy had formally contacted Gonzales or Terwilliger in connection with the probe.

But Bork Jr. called back an hour later to say that he had been mistaken about that. "We won't be able to talk about any interactions with DOJ," he now said.

In other words, it would appear, Dannehy has contacted Gonzo and/or his lawyer.

Since DOJ released a report in July into politicized hiring at the department, there has been intense speculation that Gonzales could face perjury charges in connection to his 2007 testimony to Congress.

Tom Carson, a spokesman for Dannehy declined to comment on the progress of the investigation.

We told you last month about the under-reported role of the credit ratings agencies in helping to cause the financial crisis. The problem, in a nutshell, is that the major ratings agencies -- Moody's, Standard & Poor's, and Fitch -- are paid by the insurers (often investment banks) who are issuing the bonds. That gives the agencies a clear incentive to produce favorable ratings, or risk seeing the banks hire a different ratings agency that's willing to offer a better rating.

So it's worth noting that the Securities and Exchange Commission today adopted new rules designed to protect against that conflict of interest.

The Associated Press has the rundown on the new rules:

Among other things, the conflict-of-interest rules ban the rating agencies from advising investment banks on how to package securities to secure favorable ratings. Gifts over $25 from clients also will be prohibited.

Rating agencies will be banned from making ratings in cases where the agency made recommendations to the company issuing securities or the investment bank underwriting them concerning the corporate structure, assets or activities of the issuing company.

In addition, rating agencies will be required to disclose statistics on all their upgrades and downgrades for each asset type. They also will have to disclose how much verification they performed on the quality of complex securities, such as those underpinned by mortgages, student loans or auto loans, in determining ratings for them.

Investors will receive detailed information on the ratings process for complex securities, thereby exposing potential conflicts of interest for the agencies, SEC officials said.

The SEC commissioners also voted to propose and open to public comment other rules that would require rating agencies to disclose in interactive electronic format the ratings history information for all of their assessments that companies issuing the securities pay them to do.


But the AP adds that the rules don't go far enough for some critics of the agencies, who want "new requirements to govern how the rating agencies are paid and to provide for the suspension of their licenses if they engage in unfair practices."

The Senate investigations committee has launched a probe of the ratings agencies. And we're going to be doing our own digging, so you'll hear more on this...

It's looking more and more like -- as we suspected -- Kentucky GOP senator Jim Bunning is the guy who placed the anonymous hold on the nomination of Neil Barofsky to the crucial post of special inspector general for the bailout.

Bunning's spokesman, Mike Reynard, wouldn't return any of our several calls on the subject. But the Associated Press appears to have reached him. It reports:

Republican Sen. Jim Bunning of Kentucky, a member of the Senate Banking Committee who opposed the bailout bill, has said he had "serious concerns" with Barofsky's nomination, though he has praised his experience. Bunning spokesman Mike Reynard would not comment on whether Bunning had placed the hold.


We'll let you draw your own conclusions...

Looks like top Congressional Democrats didn't find yesterday's GAO report on how Treasury is implementing the bailout program any more encouraging than we did.

In a statement, Speaker Nancy Pelosi said:

The GAO's discouraging report makes clear that the Treasury Department's implementation of the (rescue plan) is insufficiently transparent and is not accountable to American taxpayers."


And Rep. Barney Frank, who chairs the House Financial Services Committee, agreed, saying in his own statement:
The American people received two kinds of news about the TARP program - bad and worse news.

The bad news was confirmation by the GAO in its first report about the program that Treasury has no way to measure whether taxpayer funds invested in banks are being used in accordance with the purpose of the law - to increase lending. The much worse news is Treasury's response that it does not even have the intention of doing so.


Frank added: "A public hearing on the issues raised by the GAO report is now essential."

A report in the Washington Post suggests that Nora Dannehy, the prosecutor assigned by Attorney General Michael Mukasey to look into the U.S. attorney firings, is taking an aggressive approach to the job.

The Post says Dannehy "has been meeting with defense lawyers, dispatching subpoenas and seeking information about the events, according to legal sources familiar with the case."

It adds: "A grand jury in the District has issued subpoenas, the sources said."

And there's another interesting nugget:

D. Kyle Sampson, who served as the chief of staff to Gonzales until his March 2007 resignation, recently took a leave from his job as a partner at the law firm Hunton & Williams while the investigation proceeds. A spokeswoman for the law firm said he is on leave "pending admission to the D.C. bar."


DOJ's Inspector General report, released in late September, found that Sampson's testimony was "not credible" and "unpersuasive."

Dannehy was appointed September 29 to determine whether crimes had been committed in the affair. She was given 60 days to submit a preliminary report on her findings. The Justice Department did not immediately respond to a request for comment from TPMmuckraker about the report's status.

More on this soon...

The ACLU, which has sued to overturn retroactive immunity for telephone companies that illegally cooperated with the Bush administration's domestic surveillance program, appeared to receive support Tuesday from U.S. District Judge Vaughn Walker, according to Wired. Vaughn said that the law being challenged gave "attorney general carte blanche to immunize anyone" and was unprecedented. The trial began yesterday in San Francisco. (Wired)

President Bush issued an executive order Tuesday loosening the regulation of coal mining waste, a decision that was quickly condemned by environmentalists. Miners had lobbied heavily for the change, but greens say the new rule will endanger "mountains, forests and streams throughout Appalachia." The new law is one of a series of "midnight orders" issued by the president, many of which loosen environmental or labor standards.(New York Times)

Give credit where it's due. The CEOs of Ford, GM, and Chrysler said Tuesday they would accept $1 salaries in return for federal bailout funds. (Ford CEO Alan Mulally told the Wall Street Journal earlier, "I think I'm ok where I am.") Two weeks ago, the auto executives retreated home with their tails between their legs after their decision to fly private jets to Washington doomed their bid for federal funds. This time they drove or flew commercial. (CNN)

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In the sequence of posts below, we've tried to pick out the most interesting parts of the GAO report on the Treasury's administration of the bailout money. But we were working fast, so we might have missed stuff.

So if you feel like it, as usual, please review it yourself and let us know what else you find. It's here...

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