Spring Street tower in downtown L.A. to become creative offices

A Spring Street office building completed in 1915 has been purchased by a developer who plans to improve it as gentrification sweeps gradually through downtown Los Angeles' formerly depressed historic financial district.

The Corporation Building, at 724 S. Spring St., was acquired by Izek Shomof, one of the most active developers of aging properties in the city's historic core. Shomof said he plans to renovate the 13-story tower and rent office space to creative firms.

Terms of the sale by Spring & Main Property were not disclosed, but real estate experts familiar with the neighborhood valued the deal at about $10 million.

Spring Street was known as the Wall Street of the West in the early 20th century but fell from favor in the decades after World War II as financial firms and other white collar companies moved to newer buildings close to the 110 Freeway or left downtown.

The Corporation Building, like others in the area, came to house garment manufacturing in recent years, though it still bears the painted sign of a longtime former occupant that says "Dr. Campbell Credit Dentist."

Renovations will include retooling the ground floor retail space, Shomof said. "We're talking to restaurants and sidewalk cafes."

Some "creative" tenants, including Smart Architecture, are already in the building, which has no heating or air conditioning. "It's very bare-bones, but it gets great light from the large windows," said Douglas Hanson, a partner at the architectural firm.

Many former offices downtown have been turned into apartments or condominiums, but Hanson said he is pleased that the Corporation Building is to be revived as offices.

"We need to stay away from converting everything to housing," he said. "We need a mix of people living and working in the neighborhood."

Prospective buyers for the Corporation Building included hoteliers, real estate broker Ed Rosenthal of New Downtown Brokerage said.

"There is a lot of activity and changes in ownership in the historical area by Spring and Main streets," Rosenthal said. "The restaurant and boutique hotel scene is alive."

Ace Hotel, a Portland, Ore., chain of boutique inns catering to the young and hip, is building a 180-room outpost in the historic United Artists building nearby at Broadway and 9th Street. It is set to open in the fall.

The Shomof family has been redeveloping properties downtown since 1999, Shomof said. Projects include the revival of Spring Street in the blocks near the former Pacific Stock Exchange. In March, a partnership including the Shomofs bought three run-down early 20th century hotels around 5th and Los Angeles streets that it plans to improve.

Long Beach apartment complex bought

Irvine developer Western National Realty Advisors bought a 206-unit apartment complex in Long Beach for $46 million.

Western National bought the property, at 1613 Ximeno Ave., from Archstone, a Colorado apartment developer and operator. The new owner named the complex built in the 1980s the Landing at Long Beach.

Western National plans to update the 145,000-square-foot garden-style complex, said Jerry LaPointe, vice president of Western National Realty Advisors, an affiliate of apartment investor Western National Group.

The acquisition is the sixth in Western National Realty Advisors' private-equity real estate Fund II, La Pointe said. "We are actively pursuing additional acquisitions."

roger.vincent@latimes.com

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Alleged maternity hotel now appears to be vacant

An alleged maternity hotel operating out of a hilltop mansion in Chino Hills has apparently shut down after city officials obtained a temporary restraining order against its owners.

The mansion allegedly housed women from China who traveled to California to give birth to American citizen babies.

In a Dec. 7 court filing, Chino Hills officials describe a seven-bedroom house divided into 17 bedrooms and 17 bathrooms, with mothers and their babies staying in 10 of the rooms. The owners did not obtain permits to remodel the property, nor were they allowed to operate a business in a residential zone, the complaint stated.

Neighbors on Woodglen Drive complained of cars speeding in and out of the mansion's driveway. In September, about 2,000 gallons of raw sewage spilled down the hill because of an overloaded septic system.

Last month, a group called Not in Chino Hills staged a protest against the facility.

City officials who inspected the alleged hotel said conditions inside were dangerous, with exposed wiring, missing smoke alarms and holes in the bedroom floors. They found brochures titled "USA Los Angeles Hermas International Club Guidance on How to Have an American Baby," according to the Dec. 7 complaint. One woman said she paid $150 a day for her room. A receipt from another guest totaled $27,000 for a stay of several months, the complaint said.

So-called birth tourism is widespread in the San Gabriel Valley, with Chinese-language websites advertising rooms in single-family homes or luxury apartment complexes. The women typically enter the country on tourist visas and stay for about a month after giving birth. The child has the option of returning to the U.S. for schooling, and the parents may petition for a green card when the child turns 21.

The practice does not violate federal immigration laws, but some maternity hotels have run afoul of local ordinances.

On Dec. 27, San Bernardino County Superior Court Judge Ben Kayashima granted Chino Hills' request for a temporary restraining order. A hearing is scheduled for Jan. 17 to determine whether the order should be extended.

The Woodglen Drive house now appears to be unoccupied, city spokeswoman Denise Cattern said Thursday.

Hai Yong Wu, one of the owners, could not be reached for comment.

"It's about time. This thing should have shut down a long time ago," said Rossana Mitchell, a founder of Not in Chino Hills. "I'm glad to hear it."

cindy.chang@latimes.com

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Poet-performer Jayne Cortez dies in NY at age 78

NEW YORK (AP) — Jayne Cortez, a forceful poet, activist and performance artist who blended oral and written traditions into numerous books and musical recordings, has died. She was 78.

The Organization of Women Writers of Africa says Cortez died of heart failure in New York on Dec. 28. She had helped found the group and, while dividing her time between homes in New York and Senegal, was planning a symposium of women writers to be held in Ghana in May.

Cortez was a prominent figure in the black arts movement of the 1960s and '70s that advocated art as a vehicle for political protest. She cited her experiences trying to register black voters in Mississippi in the early '60s as a key influence.

A native of Fort Huachuca, Ariz., she was raised in the Watts section of Los Angeles. She loved jazz since childhood and would listen to her parents' record collection. Musicians including trumpeter Don Cherry would visit her home and through them she met her first husband, Ornette Coleman, one of the world's greatest jazz artists. They were married from 1954 to 1964.

Her books included "Scarifications" and "Mouth On Paper," and she recorded often with her band the Firespitters, chanting indictments of racism, sexism and capitalism. Its members included her son, drummer Denardo Coleman, and several other members of Ornette Coleman's electronic Prime Time band, guitarist Bern Nix and bassist Al McDowell.

Cortez, who described herself as a "jazz poet," performed all over the world and her work was translated into 28 languages. At the time of her death, she was living with her second husband, the sculptor Melvin Edwards.

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Despite New Health Law, Some See Sharp Rise in Premiums

Health insurance companies across the country are seeking and winning double-digit increases in premiums for some customers, even though one of the biggest objectives of the Obama administration’s health care law was to stem the rapid rise in insurance costs for consumers.

Bob Chamberlin/Los Angeles Times

Dave Jones, the California insurance commissioner, said some insurance companies could raise rates as much as they did before the law was enacted.

Particularly vulnerable to the high rates are small businesses and people who do not have employer-provided insurance and must buy it on their own.

In California, Aetna is proposing rate increases of as much as 22 percent, Anthem Blue Cross 26 percent and Blue Shield of California 20 percent for some of those policy holders, according to the insurers’ filings with the state for 2013. These rate requests are all the more striking after a 39 percent rise sought by Anthem Blue Cross in 2010 helped give impetus to the law, known as the Affordable Care Act, which was passed the same year and will not be fully in effect until 2014.

 In other states, like Florida and Ohio, insurers have been able to raise rates by at least 20 percent for some policy holders. The rate increases can amount to several hundred dollars a month.

The proposed increases compare with about 4 percent for families with employer-based policies.

Under the health care law, regulators are now required to review any request for a rate increase of 10 percent or more; the requests are posted on a federal Web site, healthcare.gov, along with regulators’ evaluations.

The review process not only reveals the sharp disparity in the rates themselves, it also demonstrates the striking difference between places like New York, one of the 37 states where legislatures have given regulators some authority to deny or roll back rates deemed excessive, and California, which is among the states that do not have that ability.

New York, for example, recently used its sweeping powers to hold rate increases for 2013 in the individual and small group markets to under 10 percent. California can review rate requests for technical errors but cannot deny rate increases.

The double-digit requests in some states are being made despite evidence that overall health care costs appear to have slowed in recent years, increasing in the single digits annually as many people put off treatment because of the weak economy. PricewaterhouseCoopers estimates that costs may increase just 7.5 percent next year, well below the rate increases being sought by some insurers. But the companies counter that medical costs for some policy holders are rising much faster than the average, suggesting they are in a sicker population. Federal regulators contend that premiums would be higher still without the law, which also sets limits on profits and administrative costs and provides for rebates if insurers exceed those limits.

Critics, like Dave Jones, the California insurance commissioner and one of two health plan regulators in that state, said that without a federal provision giving all regulators the ability to deny excessive rate increases, some insurance companies can raise rates as much as they did before the law was enacted.

“This is business as usual,” Mr. Jones said. “It’s a huge loophole in the Affordable Care Act,” he said.

While Mr. Jones has not yet weighed in on the insurers’ most recent requests, he is pushing for a state law that will give him that authority. Without legislative action, the state can only question the basis for the high rates, sometimes resulting in the insurer withdrawing or modifying the proposed rate increase.

The California insurers say they have no choice but to raise premiums if their underlying medical costs have increased. “We need these rates to even come reasonably close to covering the expenses of this population,” said Tom Epstein, a spokesman for Blue Shield of California. The insurer is requesting a range of increases, which average about 12 percent for 2013.

Although rates paid by employers are more closely tracked than rates for individuals and small businesses, policy experts say the law has probably kept at least some rates lower than they otherwise would have been.

“There’s no question that review of rates makes a difference, that it results in lower rates paid by consumers and small businesses,” said Larry Levitt, an executive at the Kaiser Family Foundation, which estimated in an October report that rate review was responsible for lowering premiums for one out of every five filings.

Federal officials say the law has resulted in significant savings. “The health care law includes new tools to hold insurers accountable for premium hikes and give rebates to consumers,” said Brian Cook, a spokesman for Medicare, which is helping to oversee the insurance reforms.

“Insurers have already paid $1.1 billion in rebates, and rate review programs have helped save consumers an additional $1 billion in lower premiums,” he said. If insurers collect premiums and do not spend at least 80 cents out of every dollar on care for their customers, the law requires them to refund the excess.

As a result of the review process, federal officials say, rates were reduced, on average, by nearly three percentage points, according to a report issued last September.

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Reviving brands that aren't quite forgotten

Twenty-five years ago, a new kind of sparkling water called Clearly Canadian hit store shelves.

In flavors such as Orchard Peach and Western Loganberry, the drink soon was raking in $150 million a year in sales. But when faced by growing competition, Clearly Canadian began to fade. By the early 2000s it had all but disappeared.

Enter Mark Thomann.

Early last year, the Chicago investor bought the Clearly Canadian name, hired a marketing team, contracted a bottler and hammered out a distribution deal to get the drinks back into U.S. supermarkets starting in March.

Thomann is making a bet that enough people remember Clearly Canadian to try it again. He's one of a growing group of entrepreneurs who specialize in digging through the graveyard of consumerism in search of zombie brands that can be revived.

"We believe we can make Clearly Canadian valuable again," said Thomann, chief executive of River West Brands, whose stable of resuscitated brands includes Coleco games and Underalls pantyhose.

Rebooting old names makes sense in a market crammed with products vying for consumers' attention; building a new brand can cost millions in advertising and there's no guarantee of success. But for as little as a $275 fee to the U.S. Patent & Trademark Office, one can buy a brand that, albeit dusty, is already familiar to millions of potential customers.

"It's very difficult to get a new brand established in today's marketplace," said Tim Calkins, a professor of marketing at Northwestern University's Kellogg School of Management. "So if you start with some brand awareness, it can be an advantage."

These trademark trolls scour brand registration databases, clip old magazine ads and interview consumers about beloved brands of their youth. Such efforts have brought back Polaroid, Eagle Snacks and the Sharper Image in recent years.

Attorney Kenny Wiesen revived Bonomo's Turkish Taffy because he missed his favorite childhood candy. He discovered that the trademark was held by Tootsie Roll, which quit making the thin, chewy bars in the 1980s. It took several years, a lawsuit and about $100,000, but eventually Wiesen snagged the Bonomo's Turkish Taffy brand.

That was the easy part. Wiesen and a partner then spent several years tracking down the recipe, relying in part on the memories of an 89-year-old candy chemist. Then they had to find a factory to produce it.

The candy finally hit the market in 2010. Today Wiesen produces about 8 million bars a year distributed to 10,000 stores nationwide.

"It's profitable," said Wiesen, of Carle Place, N.Y., who has acquired other brands he wants to bring back, including Regal Crown Sours hard candies. "But it's not explosively profitable."

Experts say old candy and soft drinks hold particular appeal for defunct brand specialists; consumers are nostalgic for foods they ate as kids. But that can also be a pitfall.

"You have to make the product relevant today," said Ellia Kassoff, chief executive of candy maker Leaf Brands in Newport Beach. "I don't want to sell to the dead."

Kassoff, an executive recruiter, has made a full-time business of buying and updating defunct brands, including Leaf, which he purchased in 2011 with the idea of reviving a full lineup of classic candies.

Last summer, the company reintroduced Astro Pop, a cone-shaped lollipop invented in the 1960s by a pair of California rocket scientists that went out of production in 2004. To appeal to today's kids, Leaf now makes the suckers in two sizes, as well as Astro Pop soda in a variety of flavors. It's also selling David's Signature Beyond Gourmet Jelly Beans, another brand Kassoff rescued.

Although Kassoff has purchased some old brands, others he has acquired for almost nothing thanks to a process known as abandonment. Under federal law, a trademark is considered abandoned if it hasn't been used for three years. After that, anyone can argue that they should be able to use it exclusively and receive legal trademark protection benefits that once belonged to the previous owner.

Kassoff used that strategy two years ago when he applied for trademarks to a suite of extinct department stores, including Abraham & Strauss, Filene's, the Bon Marche, Joseph Magnin and Robinson's. His plan was to license the brands to existing retailers, perhaps for in-house accessory lines.

But when Kassoff won government approval to take over the brands, Macy's Inc., the previous owner, filed a federal lawsuit in late 2011 to stop him. The department store said that it had never abandoned those chains, which it had purchased over the years, even though it had rebranded them all as Macy's. Kassoff counter-sued, saying Macy's was infringing his trademarks.

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State parks officials deliberately hid millions, report says

SACRAMENTO — Fear of embarrassment and budget cuts led high officials at the California parks department to conceal millions of dollars, according a new investigation by the state attorney general's office.

The money remained hidden for years until it was exposed by a new staff member who described a culture of secrecy and fear at the department.

The attorney general's report, released Friday, is the most detailed official account so far of the financial scandal at the parks department. The controversy broke last summer with the revelation that parks officials had a hidden surplus of nearly $54 million at a time when the administration was threatening to close dozens of the facilities.

Although much of the accounting issues appeared to stem from innocent mistakes and discrepancies, the report said, about $20 million had been deliberately stashed away.

The report said the problem seemed to begin with calculation errors more than a decade ago. But when those mistakes were discovered in 2002, officials made a "conscious and deliberate" decision not to reveal the existence of the extra money, the report said.

Parks officials concealed the funds partly because they were embarrassed, the report said. But they were also worried that their funding would be cut further if state number-crunchers knew they had a larger reserve, according to interviews conducted by a deputy attorney general.

Parks officials underreported the amount of money they had to the Department of Finance, preventing lawmakers from including the extra funds in state spending plans.

The money "was intended to be a safety net," said Manuel Lopez, a former deputy director at the department, who was interviewed in the probe. Lopez resigned in May while being investigated for a separate scheme allowing employees to be improperly paid for unused vacation days.

Multiple high-ranking officials were involved in concealing the parks money, including Lopez and Michael Harris, the chief deputy director who was fired after the scandal broke. Evidence suggests that the initial decision to keep the money secret was made by Tom Domich, an assistant deputy director who left the department in 2004, the report said.

Domich "unpersuasively denies … his role in the deception," according to the report. The Times was unable to reach Domich on Friday.

Staff members who pointed out financial problems were ignored by their bosses.

"Throughout this period of intentional non-disclosure, some parks employees consistently requested, without success, that their superiors address the issue," the report said.

It is unclear whether ousted director Ruth Coleman knew about the accounting problems, the report said. She declined to be interviewed for the investigation; participation was voluntary for former parks personnel.

Officials have not yet determined whether criminal charges will be filed. There's no evidence that any money was stolen or used improperly, the report said.

The accounting problems were eventually exposed by Aaron Robertson, who started an administrative job at the parks department in January 2012. He told a deputy attorney general that people felt uncomfortable raising concerns at the department.

"There was a great deal of distrust," he said. "People felt somewhat fearful of coming forward with information."

John Laird, the California natural resources secretary who oversees the parks department, said new policies and staff are in place to prevent similar problems in the future.

"It is now clear that this is a problem that could have been fixed by a simple correction years ago, instead of being unaddressed for so long that it turned into a significant blow to public trust in government," Laird said in a statement.

A new parks director, retired Marine Maj. Gen. Anthony Jackson, was appointed by Gov. Jerry Brown to replace Coleman in November. Robertson was promoted to become his deputy.

The attorney general's investigation is the third report on the parks department in the last month. One more report, from the state auditor, is due this month.

chris.megerian@latimes.com

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New Jersey man accused of trying to hire “cannibal cop” to kidnap woman

NEW YORK (Reuters) – A New Jersey man offered to pay $ 5,000 to the so-called “cannibal cop” to kidnap a woman and deliver her to be raped, U.S. officials alleged on Friday.

Federal authorities arrested Michael Vanhise, 23, and charged him with conspiracy to commit kidnapping with Gilberto Valle III, a New York police officer who was arrested in October and charged with conspiring to kidnap, torture, cook and eat women.

In a series of emails last year, Vanhise tried to bargain down the kidnapping fee and urged the police officer to “just make sure she doesn’t die before I get her,” according to a criminal complaint unsealed Friday.

“No need to worry,” Valle replied in an email, prosecutors allege. “She will be alive. It’s a short drive to you.”

Vanhise admitted to investigators he sent the emails, prosecutors said.

Valle, nicknamed the “cannibal cop” by New York media, was accused of targeting women whose names were discovered in a file on his computer.

In November, Valle pleaded not guilty and said he was merely engaged in online fantasy role play.

Vanhise was charged with one count of conspiracy to commit kidnapping. He was expected to appear in court Friday afternoon. His attorney, Alice Fontier, did not immediately return a call for comment.

The emails between the two men “read like a script from a bad horror film,” Manhattan federal prosecutor Preet Bharara said Friday in a statement.

Vanhise was also accused of emailing photos and the home address of a girl from his Hamilton, New Jersey neighborhood to two unnamed people, according to a criminal complaint, which said Vanhise solicited the girl’s kidnapping.

Prosecutors said Vanhise tried to bargain down the price for the kidnapping to $ 4,000.

“Could we do 4?” Vanhise asked Valle in an email last February, according to the complaint.

“I am putting my neck on the line here … $ 5,000 and you need to make sure that she is not found,” Valle responded. “She will definitely make news.”

Valle’s estranged wife tipped off authorities after she discovered a disturbing file on his computer, a law enforcement official said at the time.

The file, called “Abducting and Cooking: A Blueprint,” contained the names and pictures of at least 100 women, and the addresses and physical descriptions of some of them, according to court documents.

Authorities charged last fall that Valle had undertaken surveillance of some of the women at their places of employment and their homes.

Valle was denied bail by a judge who called the charges “profoundly disturbing.”

Both men face a maximum sentence of life in prison if convicted. The case has disturbed even veteran criminal investigators.

“No effort to characterize the defendant’s actions is necessary,” said FBI Assistant Director-in-Charge George Venizelos in a statement. “The factual allegations more than suffice to convey the depravity of the offense.”

(Reporting by Chris Francescani; Editing by Daniel Trotta and Alden Bentley)

Internet News Headlines – Yahoo! News

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'McDreamy' says he beat Starbucks for coffee chain

SEATTLE (AP) — "Grey's Anatomy" star Patrick Dempsey may be the real "McSteamy."

The actor, who was dubbed "McDreamy" as a star of the hospital drama while his co-star was called "McSteamy," may soon be serving hot, steaming cups of Joe.

Dempsey won a bankruptcy auction to buy Tully's Coffee, a small coffee chain based in Seattle. Among those he beat out is Tully's much bigger Seattle neighbor, Starbucks Corp., which is known for its ubiquitous white cups with a circular green mermaid logo.

Dempsey, whose company Global Baristas LLC plans to keep the Tully's name, declared victory on the social media site Twitter: "We met the green monster, looked her in the eye, and...SHE BLINKED! We got it! Thank you Seattle!

The win for Dempsey deals a rare setback for Starbucks on its home turf. Starbucks has long been both praised for bringing "coffeehouse culture" to the U.S. and criticized for crushing smaller chains. The coffee giant, which had planned to convert the Tully's cafes to its own brand, last month announced plans to expand its global footprint to 20,000 cafes over the next two years, up from the current 18,000.

Dempsey said in an interview on Friday that as the underdog in Seattle, Tully's will need to find its identity.

"It's a much smaller chain that has a lot of potential that hasn't been given the proper care," he said.

But in a statement shortly after the auction on Thursday, Starbucks insinuated that Dempsey shouldn't celebrate just yet.

Starbucks, which wanted to convert the Tully's cafes to its own brand, said that a final determination on the winning bid won't be made until a court hearing on Jan. 11. Starbucks said it's in a "backup" position" to buy 25 of the 47 Tully's cafes, with another undisclosed bidder making an offer for the remainder.

The combined bids of Starbucks and the undisclosed bidder come to $10.6 million, above the $9.2 million Dempsey's company is offering to pay through his company, which was formed in order to purchase Tully's. The other investors in Global Baristas aren't being disclosed.

Tully's Coffee, which is known for serving Joe with a milder taste than Starbucks brand, filed for Chapter 11 bankruptcy protection in October, citing lease obligations and underperforming stores. Tully's wholesale business, which includes Tully's Coffee in bags and single serve K-cup packs that are sold in supermarkets and other stores, is owned separately by Green Mountain Coffee Roasters Inc.

TC Global Inc., the parent company of Tully's, said in a release Friday that it was "encouraged and excited" about Dempsey's commitment to the chain.

Tully's President and CEO Scott Pearson called the deal a "great match" and that the goal is to make sure creditors get paid and to keep as many people employed as possible.

A bankruptcy court document signed late Friday by Pearson and Dempsey said TC Global had determined that Global Baristas submitted the successful bid.

"With this court filing, it's official - our group has been chosen as the successful bidder," Dempsey said in a statement. "We look forward to the court's final approval on Jan. 11."

Earlier in the day, Dempsey said he planned to be very involved in the running of the company, adding that the immediate challenges were to address bookkeeping issues, staff morale and sprucing up the coffee shops. Once the business is stabilized, Dempsey said the long-term goal would be to take the chain national.

"We can pull this off. We just have to take steps that are slow and smart," he said. "I'm going to get behind the counter. I'm going to serve coffee...I'm going to give the company a boost of energy."

Although Dempsey lives in Los Angeles, he plans to spend more time in Seattle, the city where "Grey's Anatomy" is set in. Dempsey said he believed there is room in the city for Tully's and the much larger Starbucks; he noted there might be people who are rooting for the underdog.

"In a society where there are so many big corporations that swallow the little guy, we thought, let's not let this happen to this company," he said.

Dempsey made an appearance Friday morning at a Tully's near Pike Place Market, shaking hands with workers and greeting customers before visiting other stores. Several dozen people, mostly women, came into the store.

Patrease Estelle, 45, works nearby, and came in with a small group from her office.

"I will take whatever I can get. A photo, a hug, a 'hey, how you doing,' a wink," said Estelle, who got a picture and handshake with the actor.

___

Blankinship reported from Seattle and Choi from New York.

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Massachusetts Plans Stricter Control of Compounding Pharmacies

BOSTON — New laws to strengthen state control of compounding pharmacies were proposed on Friday by Gov. Deval Patrick, in hopes of preventing another public health disaster like the current outbreak of meningitis caused by a contaminated drug made in Massachusetts.

The laws will be among the strongest in the country, said Kevin Outterson, a law professor at Boston University and a member of the expert panel that advised the state on how to curb abuses by companies like the New England Compounding Center, the Framingham pharmacy that made the tainted drug responsible for the nationwide meningitis outbreak.

The legislation would establish strict licensing requirements for compounding sterile drugs; let the state assess fines against pharmacies that break its rules; protect whistle-blowers who work in compounding pharmacies; and reorganize the state pharmacy board to include more members who are independent of the industry and fewer who are part of it.

Alec Loftus, a spokesman for the state’s Office of Health and Human Services, said that Mr. Patrick expected the new legislation to be passed quickly.

Daniel Carpenter, a professor of government at Harvard, said the proposed laws seemed sound and comprehensive. But he warned that if other states did not take similar steps, compounding pharmacies engaging in shoddy practices would just move to places with the weakest laws and the least oversight.

“The remaining question is not what Massachusetts is doing or will do, but will there be a minimum level of regulation like this in the rest of the states?” Professor Carpenter said.

The meningitis outbreak, first detected in September, was caused by contaminated batches of a steroid, methylprednisolone acetate, made by the New England Compounding Center. The drug was injected into about 14,000 people’s spinal area to treat back and neck pain.

As of Dec. 28, 656 people in 19 states had become ill with meningitis or other infections, like severe internal abscesses in the area where the drug was injected. Some have had both meningitis and spinal infections. The case count is expected to keep rising. Thirty-nine have died.

The New England Compounding Center was shut down, and inspections found extensive contamination. Investigations uncovered a long history of questionable practices that had drawn warnings from the state and the Food and Drug Administration.

On Dec. 21, the company announced that it had filed for bankruptcy. Numerous lawsuits have been filed against it.

At the heart of the problem have been gaps in regulation that have allowed such companies to avoid both state and federal controls. The company called itself a pharmacy, and pharmacies are generally regulated by states, while large drug companies are regulated federally, by the Food and Drug Administration.

Compounding pharmacies mix their own drug preparations, like skin creams and cough syrups, supposedly for individual patients with special needs. But the New England Compounding Center began to act like a manufacturer, making and shipping large amounts of injectable drugs, for which sterility is essential. No state law required it to obtain a license for this type of large-scale compounding, to follow good manufacturing processes or to let the state know it was shipping all over the country.

Dr. Lauren Smith, interim commissioner of the Massachusetts Department of Public Health, said the company “was a manufacturer in pharmacy clothing.”

Governor Patrick said, “The tragic meningitis outbreak has shown us all that the board’s governing authority has not kept up with an industry that has evolved from corner drugstores to the types of large manufacturers that have been at the center of so much harm.”

Dr. Smith said she thought the most important part of the new legislation was the requirement of a license for sterile compounding. “Now we are going to have the ability to develop specialty licenses that will allow us to track and identify those pharmacies that are engaged in different practices that could potentially put higher numbers of individuals at risk, such as those who engage in sterile compounding,” she said.

Professor Carpenter said a particularly powerful part of the proposal is that it requires licensure for out-of-state pharmacies that ship medication to Massachusetts. The state, he said, is a huge market for injectable drugs.

“Basically, if you think about the large hospitals, the amount of medical care that goes on in the state, it’s in a sense using the purchasing power of the state of Massachusetts to induce changes elsewhere,” he said.

The state has also taken other steps recently to rein in compounding, apart from the new legislation. It began conducting surprise inspections, and has required compounding pharmacies to report how much medication they are shipping and where, so that it can keep tabs on those that begin acting like manufacturers. It also requires the pharmacies to report when they become subjects of regulatory actions by other states or the federal government.

Abby Goodnough reported from Boston, and Denise Grady from New York.

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Corporations and execs need penalties that hurt

If you're concerned about corporate crime, 2012 looked like a pretty successful year for the good guys.

The Thousand Oaks biotech giant Amgen paid $762 million in fines and penalties and pleaded guilty to a federal charge related to illegal marketing of its anemia drug Aranesp. Britain's GlaxoSmithKline and Illinois-based Abbott Laboratories paid $3 billion and $1.5 billion in government penalties, respectively, in connection with their off-label promotions of blockbuster drugs. Glaxo's was the biggest drug company settlement in history.

The global bank HSBC paid a record $1.92 billion to settle federal accusations that it operated a huge money-laundering scheme for Mexican drug dealers and Middle Eastern terrorists. BP agreed to pay $4.5 billion and plead guilty to 11 felony counts in connection with the 2010 Deepwater Horizon oil spill in the Gulf of Mexico. It was the biggest federal criminal penalty ever.

To the companies, however, these big numbers are just chump change. Typically they don't even represent repayment of ill-gotten gains — more often merely the cost of doing business. And to the public, they're insults piled atop the injuries caused by the firms' wrongdoing.

"These fines are a carny act to keep the rubes happy," according to William K. Black, who was a thrift regulator during the savings and loan crisis of the 1980s. "It's cynical — the art is to make the amount sound large but make sure that it has no material effect."

What might really get the attention of the CEOs and other top executives of lawbreaking companies would be some time in the hoosegow. Does that sound quaint? If so, it's because not a single high-ranking executive of any of the companies mentioned above faced indictment or was even forced to step down.

The absence of criminal cases against perpetrators of the 2008 financial crisis is a continuing scandal. It's not as though there haven't been suitable candidates for the docket. Angelo Mozilo, the chairman of Countrywide Financial, was the face of mortgage company excesses in the housing bubble.

He settled Securities and Exchange Commission charges against him for $67.5 million (of which $45 million was covered by insurance companies and Countrywide's new owner, Bank of America). But although SEC documents showed he was fully aware that some of the mortgage products his firm was peddling were toxic garbage, federal prosecutors dropped their criminal case.

Earlier scandals produced plenty of pelts. Starting in the 1980s, the savings and loan crisis generated 30,000 criminal referrals from one regulatory agency alone, the Office of Thrift Supervision, according to Black, who oversaw the referral process for federal regulators as litigation director for the Federal Home Loan Bank Board and in other posts. Fast forward to the 2001 collapse of Enron. Its CEO, Jeffrey Skilling, is still serving a 24-year jail term. He might have been joined there by Enron Chairman Ken Lay, had Lay not died before his sentencing for 10 counts of fraud and other charges in 2006.

Federal prosecutors today say multibillion-dollar fines and related good-behavior pledges are as good as jail time at discouraging bad behavior — "the same punitive, deterrent and rehabilitative effect as a guilty plea," as Lanny A. Breuer, the Justice Department's white-collar crime chief, said in a speech last year.

But that's nonsense. For a corporation, the fines aren't even that big. The HSBC settlement comes to about 11 days' worth of revenue for that bank holding company; Abbott's about two weeks' worth. Amgen sells about $2 billion of Aranesp every year; the mismarketing for which it forked over $762 million lasted for years.

Prosecutors' interest in corporate white-collar cases has been dissipating like the air in an old balloon. The cases are complex and time consuming and require facts to be gathered by aggressive regulators (themselves a vanishing breed). After 9/11, national security became the hot field for ambitious crime fighters. The fewer convictions for corporate crime there are to make the news, the less interest there is in finding more. An important turning point came in 2008, when then-U.S. Atty. Gen. Michael Mukasey refused to appoint a task force to investigate mortgage fraud, dismissing it as "white-collar street crime."

Even when prosecutors are handed a weapon, they don't use it. The post-Enron Sarbanes-Oxley Act carries stiff criminal penalties for top executives who sign off on false financial statements. Statistics are hard to come by, but when the law marked its 10th birthday in mid-2012 the number of prosecutions it had produced appeared to be less than five.

But Black and other experts in white-collar crime say that effective deterrence comes only from putting the responsible executives in jail. "I question the efficacy of bringing a criminal case against an institution," says former California Treasurer Phil Angelides, who chaired the government's Financial Crisis Inquiry Commission, which held public hearings and issued a report on the causes of the 2008 financial meltdown. "Where they're warranted, the pursuit of criminal charges ought to be focused on individuals and the leadership, not inanimate entities."

Yet federal policy is moving in the opposite direction. Instead of criminal sanctions, the Justice Department relies increasingly on "corporate integrity agreements" or "deferred prosecution agreements." In the first case, a company averts indictment by agreeing to augment its internal legal controls; in the second, it acknowledges that it might be subject to prosecution if it's caught breaking the law again.

Either way, it's a free pass.

Corporate lawyers love these deals because history shows that the threat of subsequent prosecution is a paper tiger. Indeed, enforcement in the pharmaceutical industry, where illegal off-label marketing of drugs is an epidemic, is a joke. Pfizer, Novartis, Lilly and Schering-Plough have all entered into multiple corporate integrity agreements or other consent decrees; in almost every case, when the first one is breached, it's simply replaced by a new one. As of mid-2012, when the Glaxo settlement was announced, 25 major drug companies were operating under corporate integrity agreements, including eight of the 10 biggest firms in the industry — and more cases of illegal drug marketing were coming to light all the time.

Prosecutors resort to these deals because they're afraid that stringent penalties that damage a corporation will hurt innocent victims such as employees or suppliers. Imposing the nuclear option on a drug company, which is forbidding it to do business with Medicare and Medicaid, could mean depriving patients of needed medicine. Prohibiting a big bank from doing certain transactions could hurt the financial system.

But that means the regulation of corporate wrongdoing has become "all about damage control, not crime control," says Henry N. Pontell, a leading criminologist at UC Irvine. That gives corporations powerful leverage to avoid serious penalties, and it encourages the imposition of penalties firms can absorb as merely the cost of doing business.

There's light on the horizon, but it's not yet shining brightly. An SEC whistle-blowers program established by the 2010 Dodd-Frank Act, which allows tipsters to share in recoveries in securities fraud cases, received more than 3,000 tips in its first full year. But so far there's been only one payout, for $50,000.

And whistle-blowers can't shoulder the burden by themselves. What's needed is a new regulatory mind-set, and rewards for prosecutors who put guilty executives behind bars. You'll never stem corporate crime if it's treated as something to be wrist-slapped away while Jean Valjeans rot in jail for petty offenses.

"I always cite the following," says Angelides. "If someone robbed a 7-Eleven for $1,000 and they could settle a week later for $25 and no admission of wrongdoing, would they do it again? Absolutely."

Michael Hiltzik's column appears Sundays and Wednesdays. Reach him at mhiltzik@latimes.com, read past columns at latimes.com/hiltzik, check out facebook.com/hiltzik and follow @latimeshiltzik on Twitter.

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