IRS addressing wide disparity in audit rates between Black taxpayers, other filers

• May 2, 2024

By Fatima Hussein | The Associated Press

The IRS said Thursday that it has taken steps to address a wide disparity in audit rates between Black taxpayers and others filers, and is more closely examining the returns of larger numbers of wealthy people and major companies.

“We are overhauling compliance efforts to advance our commitment to fair, equitable, and effective tax administration and hold ourselves accountable to taxpayers we serve,” according to an annual update from the agency.

A study from January 2023 involving university researchers and the Treasury Department found that IRS data-driven algorithms selected Black taxpayers for auditing at up to 4.7 times the rate of non-Black taxpayers. The study said the IRS disproportionately audited people who claim the Earned Income Tax Credit, which is aimed at low- to moderate-income workers and families: While Black taxpayers accounted for 21% of the claims for that break, they were the focus of 43% of the audits concerning the credit.

“We have taken swift initial action to dramatically reduce the number of those audits. We have also made changes to the selection criteria for those audits,” IRS Commissioner Daniel Werfel said.

Werfel, who was sworn in a little more than a year ago, has testified before Congress about the issue and last September he wrote to the Senate Finance Committee that the IRS would make changes.

The discriminatory audits, he told reporters, “degrade trust in our tax system.”

Werfel and the IRS have tried over the past year to show how money from the Inflation Reduction Act, President Joe Biden’s big climate, health and tax law, has helped to modernize the agency and improve taxpayer services, and that people making less than $400,000 per year would not be subject to more audits due to the new funding.

Noting the promise to keep audit rates for people making $400,000 per year and less at 2018 levels, he said on Thursday that “we haven’t in any way exceeded that rate.”

He added: “There is no new wave of audits coming for middle and low income” taxpayers — “that is not in our plans in any way shape or form.”

The IRS is focusing the next year on using the funding boost to conduct higher rates of audits on suspected wealthy tax cheats after having collected hundreds of millions of back taxes this year.

Ensuring that people pay their taxes is one of the tax collection agency’s biggest challenges. The audit rate of millionaires fell by more than 70% from 2010 to 2019 and the rate on large corporations dropped by more than 50%.

The IRS plans to raise audit rates on companies with assets above $250 million to 22.6% in 2026, from an 8.8% rate in the tax year 2019. It also plans to increase audit rates by tenfold on large complex partnerships with assets over $10 million.

“While the IRS has accomplished a lot so far with IRA funding,” he said, “we need to do much more to make improvements and transform the IRS for the benefit of taxpayers.”

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Irvine-based Rivian cutting more jobs with woes mounting for EV market

• May 2, 2024

By Ed Ludlow and Isis Almeida | Bloomberg

Irvine-based Rivian Automotive will cut an another 1% of its workforce, the second round of layoffs this year as the electric vehicle industry grapples with flagging consumer demand.

“We continue to work to right-size the business and ensure alignment to our priorities,” the company said in an emailed statement. “This was a difficult decision, but a necessary one to support our goal to be gross margin positive by the end of the year.”

The move comes about two months after Rivian slashed 10% of its salaried staff as high interest rates and economic headwinds compounded the company’s ongoing challenges with scaling production. The prior round of cuts focused on product teams and those working on its commercial EV business, while the latest move will mostly affect support and back-office workers.

Also see: Rivian beats EV production estimates with shipments rebounding

Rivian had 16,790 workers as of Dec. 31, suggesting the latest cuts could amount to 150 or more jobs.

The company also said Thursday that it will receive incentives valued at $827 million from Illinois to expand its electric-vehicle plant in the state after the company halted work on a separate facility in Georgia.

The 30-year package is mostly tax benefits under the Reimagining Energy and Vehicles in Illinois program, according to a statement Thursday from the governor’s office. Rivian is set to receive $75 million in capital funding under a separate state initiative. The automaker also announced the state package in a separate release.

The incentives underscore the financial benefits for the manufacturer in building out an existing production site rather than building a new one. Rivian said in March that it would save $2.25 billion by pausing the Georgia factory and shifting planned production of its forthcoming lower-cost R2 vehicle to Illinois.

The company is looking to fortify its finances in the face of waning consumer demand, rising competition and production challenges.

Rivian plans to invest $1.5 billion to expand capacity at its plant in Normal, Illinois, to 215,000 units annually from 150,000. The project is expected to create more than 550 jobs over the next five years, according to the statement.

The decision represents another win for J.B. Pritzker after the billionaire governor lured a Gotion High-tech Co.’s $2 billion gigafactory to Illinois. The state, which recently renewed a $400 million fund to draw companies, is trying to position itself as a hub for new technologies from quantum computing to life sciences and EV manufacturing.

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Illinois said it will also fund a new manufacturing training academy co-located at the new facility in Normal, which will offer an apprenticeship program for high schools.

Rivian’s focus on the existing plant is not without challenges. Expansion will take time as it builds new assembly lines, and labor availability is a significant consideration. The company, which makes a pair of consumer models and an electric delivery van, employs about 8,000 people at the site.

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LA developer accused of misappropriating millions in homeless housing funds files for bankruptcy

• May 2, 2024

Embattled Los Angeles developer Shangri-La Industries has filed for Chapter 11 bankruptcy protection on state-funded motel conversion projects to house the homeless in Redlands, Thousand Oaks and two other California communities.

The court filing Monday, April 29, at the U.S. Bankruptcy Court in San Jose affects three conversion projects — at the former Good Nite Inn in Redlands, the former Quality Inn & Suites in Thousand Oaks and the former Sanborn Inn in Salinas — funded under California’s Homekey program.

The fourth, at a former Motel 6 in San Ysidro, was funded under the state Community Care Expansion program, said Brian Sun, the attorney representing Shangri-La. That program funds the acquisition, construction and/or rehabilitation of adult and senior care facilities to serve people who receive Social Security and other government aid and are at risk of or experiencing homelessness.

Shangri-La had upgraded or was planning to upgrade each of the motels to house homeless individuals.

Officials respond

Although aware of Shangri-La’s bankruptcy filing, city officials could not immediately say how it might impact their respective Homekey projects.

“We are aware of the bankruptcy and the city will be meeting with our attorneys to discuss next steps. We have no further comment,” Redlands spokesperson Carl Baker said in an email on Wednesday.

Alexandra South, a spokesperson for Thousand Oaks, said in an email that speculating on the impact of Shangri-La’s filing would be premature.

“As these matters are in litigation, the city has no further comment regarding the status of the various matters,” South said.

Salinas Mayor Kimbley Craig said in an email that the city is considering its options regarding the fate of the project at the former Sanborn Inn. As for two other motels in the city Shangri-La also was contracted to upgrade — the former Salinas Inn and the former Good Nite Inn — they were recently purchased by lending companies at recent foreclosure sales, she said.

“The city is working with those lenders, as well as the state, toward completion of those projects for use as permanent supportive housing,” Craig said.

Problems surface in 2023

Gov. Gavin Newsom launched Project Homekey in June 2020 to protect unhoused individuals from the threat of the coronavirus pandemic. The state has allocated more than $3 billion to cities and counties to purchase motels, hotels, vacant apartment buildings and other properties to provide permanent housing for the homeless.

Problems began surfacing for Shangri-La last year, when a Southern California News Group investigation revealed that lenders and contractors were complaining about not being paid for completed work at the former Good Nite Inn in Redlands, now Step Up in Redlands, and the former All Star Lodge in San Bernardino, now Step Up in San Bernardino.

It later was revealed that dozens of mechanic’s liens totaling millions of dollars have been filed over the past year at recorders’ offices in San Bernardino, Ventura and Monterey counties, the site of other Homekey projects in which Shangri-La was involved.

At the San Bernardino County Recorder’s Office alone, more than $2 million in liens had been filed in 2023 by contractors and suppliers not paid for work completed at the Redlands and San Bernardino motels.

Shangri-La’s failure to pay resulted in more than a dozen lawsuits against the developer by contractors and lenders.

Agreement terminated

On April 16, the Redlands City Council terminated its Homekey agreement with Shangri-La amid allegations by the state Department of Housing and Community Development that the developer misappropriated $114 million in Homekey funds.

Redlands Assistant City Manager Chris Boatman told the council that the city would continue to provide $510,000 annually as an operating subsidy to house the homeless at Step Up in Redlands, which he said is now housing 132 formerly homeless residents.

Boatman said the city’s termination of its agreement with Shangri-La now gives the city full control to ensure that money is spent appropriately and toward operational expenses.

State lawsuit

In a 321-page lawsuit filed in January in Los Angeles Superior Court, the state Housing and Community Development Department alleged Shangri-La breached its obligations under terms of its agreements with the Homekey program.

After obtaining state funding, Shangri-La, according to the state’s lawsuit, granted and recorded deeds of trust to secure loans from third-party lenders without first obtaining the state’s written authorization, as required under the Homekey agreements. Shangri-La then defaulted on the loans, causing the lenders to begin the foreclosure process.

Sun said the bankruptcy filings are part of the developer’s plan to restructure and finish its commitments on the various Homekey projects.

“We will issue a statement soon after some preliminary restructuring and financing components are put into place,” Sun said on Wednesday, May 1.

Buying time

Adam Stein-Sapir, a bankruptcy expert at the New York City-based Pioneer Funding Group, said the bankruptcy will pause any state court litigation and collections actions by creditors and/or lenders, which will give Shangri-La breathing room to get its financial affairs in order.

“They will try to recover as much of the stolen funds as possible. If they are very successful, they may be able to cure defaults and emerge from bankruptcy in a timely fashion,” Stein-Sapir said. “However, if there really is a multimillion-dollar hole in their balance sheet, they may have no choice but to sell the properties to repay the lenders.”

He said the developer’s filing was essentially “bare bones” and included no financial information. Therefore, Shangri-La is required to file supplementary financial information within 45 days from the day of the filing.

“Even though they are in bankruptcy, they will do their best to operate the facilities and complete construction on the unfinished sites,” Stein-Sapir said. “However, this will likely require the consent of their lenders, whoever they are. At the very least, they should be able to continue operating the in-use facilities.”

Cody Holmes, former chief financial officer for Los Angeles developer Shangri-La Industries, and his ex-girlfriend, Madeline Witt, have been sued by Shangri-La, which alleges Holmes embezzled millions of dollars from the company, some of which was earmarked for state-funded motel conversion projects to house the homeless, and used the money to finance a luxurious lifestyle for himself and Witt. (Photo courtesy of Brian A. Sun)

Former CFO under fire

Shangri-La has accused its former chief financial officer, Cody Holmes, of embezzling millions of dollars in company money to live a lavish lifestyle, which put the developer’s state-funded projects in jeopardy, including those listed in its Chapter 11 filing.

In a lawsuit filed against Holmes and his ex-girlfriend, Madeline Witt, in February seeking $40 million in damages, Shangri-La alleged Holmes engaged in bank fraud and check kiting in 2022 and 2023 with Shangri-La’s lenders, banks and brokers. He allegedly transferred vast sums of company cash and property to bank accounts and shell companies he controlled and to Witt, according to the lawsuit.

Related links

California sues San Bernardino County, LA developer for bungling homeless housing projects
Redlands boots embattled LA developer from homeless housing program
Developer of Redlands motel converted to homeless housing hit with $2 million in liens
Embattled LA developer accuses its financial chief of looting millions intended for homeless housing
Redlands breaks ground on 99 units of housing for homeless residents

Holmes used the money to host extravagant parties, cover $46,000 a month in rent at a leased home in Beverly Hills, travel regularly on private jets, lease exotic cars — including a 2021 Bentley Bentayga and a Ferrari Portofino — and even $12,000 to cover a student loan payment, the lawsuit alleges.

He also purchased high-dollar luxury items for himself and Witt, including two Birken handbags valued at nearly $128,000, Chanel and Louis Vuitton handbags valued at more than $14,000, a $127,000 Riviera diamond necklace, a $35,000 Audemars Piguet diamond watch, and 20 VIP passes for the 2023 Coachella Music and Arts Festival valued at more than $53,000, according to the suit.

“The duration, nature and amount of the fraud illustrate a stunning lack of financial controls at Shangri-La,” Stein-Sapir said.

In a statement Wednesday, Holmes’ Los Angeles attorney, Ramin Azadegan, said: “We will be addressing the baseless, defamatory claims made against Cody Holmes and Madeline Witt in court. The complaint filed by Shangri-La Industries CEO Andrew “Andy” Meyers is a desperate, dishonest attempt by Mr. Meyers to dodge responsibility for his company’s current legal challenges.”

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Horse racing: This Kentucky Derby pick has a touch of surprise

• May 2, 2024

The 150th Kentucky Derby is a first-rate edition of America’s most famous race, showing off one potentially dominant horse, a cool clash of styles between the two favorites, and logical options for upset-minded bettors.

It should take a little over two minutes to forget about the absence of Bob Baffert, the six-time Derby-winning trainer.

The would-be superstar is Fierceness, last season’s 2-year-old champion and a 13½-length winner in the Florida Derby. If he runs his race, he’ll be hard to beat. But he has yet to do that back to back.

The difference in running styles is between Fierceness and Sierra Leone, and it’s as stark as you’ll see between top contenders in any Derby. Fierceness led all the way in his prep, while Sierra Leone rallied from next to last in a field of 10 to win the Blue Grass Stakes. Early tactics and pace could help or hinder the front-runner or the late-runner, or others with similar propensities.

The upset chances include the rest of the major prep-race winners, and, yes, Santa Anita Derby winner Stronghold is among those with a shot.

But the best bets in the Kentucky Derby often come from the ranks of horses who were beaten in their previous race and can benefit from difference circumstances this time.

Just such a horse is Just a Touch.

It’s understandable that Just a Touch, wearing No. 8, ridden by Florent Geroux for trainer Brad Cox, is a 10-1 co-fourth choice on the Churchill Downs morning line, behind 5-2 Fierceness, 3-1 Sierra Leone and 8-1 Catching Freedom and level with 10-1 Forever Young.

He has raced only three times, having started his career in January; he is winless in two tries at the stakes level; and he ran second, 1½ lengths behind Sierra Leone, in the Blue Grass.

It’s also reasonable to think those disadvantages could turn into advantages at 3:57 p.m. Saturday.

Having no races at age 2 used to be a red flag for Derby horses, but no longer. Mage won in 2023 with three previous starts, all at age 3, and so did none other than Justify – Just a Touch’s sire – on his way to the Triple Crown in 2018. Just a Touch debuted late in part because he was a late foal, born in May 2021, two or three months after the other Derby contenders; this could mean he’s behind other contenders in development or that he’s just a little later than the rest to show his best stuff.

The Blue Grass had the fastest early pace in any of this year’s major Derby preps, and it took a toll on Just a Touch after he raced within a length of the front-runner and grabbed the lead in the Keeneland homestretch. Just a Touch didn’t have quite enough left to resist Sierra Leone as the winner blew by. Given a normal pace, Just a Touch might have met Sierra Leone’s challenge.

It’s too much to hope for a slow pace in the Derby, but Just a Touch would settle for a moderate pace, as would other horses who race up close early, like Fierceness, Track Phantom and Dornoch.

They might have been helped Tuesday when Encino, front-running winner of the Lexington Stakes, was scratched because of a minor injury. Encino is replaced in the 20-horse Derby by Epic Ride, who likes to sit behind the leaders.

They could be helped by rain, an 80% chance Friday and 50% Saturday, according to National Weather Service handicappers. In the most recent Derbies to be run on wet tracks, in 2017, 2018 and 2019, horses running on or close to the lead finished first (though Maximum Security was disqualified).

In any case, they are helped by the more frequent success of horses racing close to the pace in the Derby since the 2012 changes in the qualifying system rid the race of entrants with pure sprinters’ speed.

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In watching the Derby, pay attention to Fierceness at the start, where he had trouble in both losses. Then watch how fast the leaders go early, whether it’s a comfortable pace or so fast that it sets up a late charge from Sierra Leone, Catching Freedom or Honor Marie. In recent years, average quarter-mile fractions have been about 22.6 seconds, 46.0 seconds and 1:10.4 on the way to 2:02 for the 1¼ miles.

Conditions could make Just a Touch a good bet at anything close to 10-1.

My picks: 1. Just a Touch, 2. Fierceness, 3. Sierra Leone.

Others to consider for multi-horse bets, each listed at 20-1 on the morning line: Track Phantom, Stronghold, Just Steel, Honor Marie, and, especially on a wet track, Mystik Dan.

Follow Kevin Modesti on Twitter (formerly X) @Kevin Modesti.

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No updates on whether UCI will dismantle encampment, spokesperson says

• May 2, 2024

A university spokesperson on day four of the Gaza-solidarity encampment at UC Irvine said there are no updates on whether the university will take further action regarding the protest in light of the overnight dismantling of the encampment at UCLA.

As of mid-morning Thursday, May 2, the situation at UCI appeared to be very calm.

Students, who are calling for the university to divest itself from businesses with ties to Israeli and weapon manufacturers, huddled inside the barricaded encampment zone while just a handful of reporters walked around and several TV cameras pointed at them. The students also want the university to grant amnesty for demonstrators.

University officials in an earlier message to those participating had said students and staff who voluntarily leave the encampment “will not face discipline.”

At UCLA,  police in riot gear dismantled the massive encampment set up by pro-Palestinian protesters outside Royce Hall. Dozens of people were detained.

In Irvine, however, there were less than 10 campus police and private security seen walking around monitoring the encampment early Thursday.

Check back for updates.

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Teen clothing retailer rue21 files bankruptcy for 3rd time

• May 2, 2024

By Jonathan Randles | Bloomberg

Teen clothing retailer rue21 has filed bankruptcy to close its stores and sell its brand, marking the third time the business has sought court protection and the latest sign of trouble for mall-based outlets.

The retailer, which is majority owned by Blue Torch Capital, filed Chapter 11 Thursday in Delaware, listing assets and liabilities each of between $100 million and $500 million. The company said it will conduct going-out-of business sales over the next 4 to 6 weeks while it runs a sale process for the retailer’s intellectual property.

The chain previously filed Chapter 11 in 2017 and 2002 under the name Pennsylvania Fashions. Headquartered outside of Pittsburgh, rue21 operates roughly 540 locations in malls and other outlets across the US, according to court documents.

Rue21 Chief Financial Officer Michele Pascoe said in a sworn statement that company advisers marketed the business before the Chapter 11 case. The company determined it would generate more money for creditors by conducting store closing sales, liquidating inventory and other assets and selling the brand rather than keeping the rue21 operating as a going-concern Pascoe said.

The latest bankruptcy filing comes after the retailer overhauled its executive leadership in 2023. In March, rue21 announced the appointment of Chief Executive Officer Josh Burris and in December appointed Pascoe CFO. Burris had previously served as the head of vitamin retailer GNC Holdings Inc. following that chain’s restructuring in 2020.

Last year, rue21 also worked with with AlixPartners LLP for operational help after racking up earnings losses, Bloomberg News reported at the time. The retailer’s 2017 bankruptcy was initiated after rue21’s sales were hurt by falling foot traffic and changing consumer spending habits.

Rue21 entered into negotiations with its lenders to avert a bankruptcy filing in October 2022.

Several mall-based retail chains have filed Chapter 11 in recent years to close stores and restructure. Express Inc. filed bankruptcy in April and said it could be forced to liquidate if it can’t complete a buyout relatively quickly.

The case is New rue21 Holdco Inc., number 24-10939, in the US Bankruptcy Court in the District of Delaware.

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Trump says ‘a lot of people like it’ when he floats the idea of being a dictator

• May 2, 2024

People don’t seem to mind the idea of former President Donald Trump acting as a dictator, he told Time magazine in an interview that drew swift rebuke from the Biden-Harris campaign.

In a wide ranging interview given to the magazine — and shared by the 45th President Tuesday morning via his Truth Social media platform — Trump was asked to explain comments he made to Fox News host Sean Hannity, in which the former president said he would become a dictator on his first day in office.

“A lot of people like it,” Trump reportedly told Time.

As might be expected, President Joe Biden’s reelection team was quick to note the revelations contained in the interview and respond.

“Not since the Civil War have freedom and democracy been under assault at home as they are today – because of Donald Trump. Trump is willing to throw away the very idea of America to put himself in power,” Biden-Harris 2024 Spokesperson James Singer said in a statement.

“In his own words, he is promising to rule as a dictator on ‘day one,’ use the military against the American people, punish those who stand against him, condone violence done on his behalf, and put his own revenge and retribution ahead of what is best for America. Bottom line: Trump is a danger to the Constitution and a threat to our democracy,” Singer continued.

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According to Time, Trump also shared his thoughts on abortion in the aftermath of the Supreme Court decision to overturn Roe v. Wade, effectively leaving the legality of abortion up to state legislatures. Trump said he would not stand in the way of conservative states that wish to monitor the pregnancies of resident women and punish them should they receive abortions, according to the magazine.

“Simply put: November’s election will determine whether women in the United States have reproductive freedom, or whether Trump’s new government will continue its assault to control women’s health care decisions. With the voters on their side this November, President Biden and Vice President Harris will put an end to this chaos and ensure Americans’ fundamental freedoms are protected,” Biden-Harris campaign manager Julie Chavez Rodriguez said.

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US lawmakers slam UnitedHealth’s cybersecurity, call the company ‘a monopoly on steroids’

• May 2, 2024

Christopher Snowbeck | Star Tribune (TNS)

A hugely disruptive cyberattack in February exposed clear technology flaws at a UnitedHealth Group subsidiary, lawmakers said Wednesday, and raised difficult questions about whether the Minnetonka-based health care giant has just gotten too big.

Andrew Witty, the UnitedHealth chief exeutive, offered an apology during testimony before the Senate Finance Committee as he disclosed that a hacked server at the company’s Change Healthcare unit lacked multifactor authentication protections.

This was a significant failure to comply with “cybersecurity 101,” said committee chair Sen. Ron Wyden, a Democrat from Oregon.

Sen. John Barrasso, a Republican from Wyoming, said he was “just not sure why you haven’t had this in place yet.”

Witty said he was “disappointed and frustrated” by the flaw, as well, explaining that UnitedHealth was in the process of upgrading security and systems after acquiring Change Healthcare in October 2022. While the CEO said the company’s massive size and scope has enabled a speedy response to the incident, Wyden promised further investigation both of the cyberattack and broader questions surrounding the company.

“The Change hack is a dire warning about the consequences of ‘too big to fail’ mega-corporations gobbling up larger and larger shares of the health care system,” Wyden said. “It is long past time to do a comprehensive scrub of UHG’s anti-competitive practices, which likely prolonged the fallout from this hack.”

UnitedHealth CEO Andrew Witty testifies before the Senate Finance Committee on Capitol Hill on May 1, 2024 in Washington, DC. In February hackers stole health and personal data of what UnitedHealth says is “potentially a substantial proportion” of patient information from its systems. (Kent Nishimura/Getty Images/TNS)

UnitedHealth Group is Minnesota’s largest company by revenue and the fourth largest firm in the U.S. by the same measure. The company’s UnitedHealthcare division is the nation’s largest health insurer. It also owns a fast-growing health services division called Optum that employs or is affiliated with about 70,000 physicians.

The cyberattack has been a blow to the nation’s health care system because UnitedHealth Group — to contain the threat — had to shut down Change Healthcare systems used widely to process payment claims for U.S. health care providers. Those systems are now getting back to normal, Witty said, but senators grilled the CEO for not yet being able to specify how many and which patients have had their data compromised.

A substantial proportion of Americans may have been impacted, the company says, and Witty said it will take more time to understand exactly who was impacted, including members of the U.S. armed forces. UnitedHealth last week offered credit monitoring and identity theft protection for two years, but this amounts to “cold comfort,” Wyden said.

“This corporation is a health care leviathan,” he said. “I believe the bigger the company, the bigger the responsibility to protect its systems from hackers. … Americans are still in the dark about how much of their sensitive information was stolen.”

Witty told the committee that on Feb. 12 criminals used compromised credentials to access the Citrix portal at Change Healthcare. This portal was used for remote access of desktops, the CEO said.

It was company policy at the time, Witty said, to have multifactor authentication — called MFA for short — on all externally facing systems. He told Wyden that all these systems are now protected in this way.

“To all those impacted, let me be clear: I’m deeply, deeply sorry…,” Witty said. “We will not rest — I will not rest — until we fix this.”

Barrasso said he didn’t understand the oversight, considering he knows how even a small, financially struggling hospital in his home state has been able to implement MFA technology. UnitedHealth Group, meanwhile, is one of the nation’s most financially successful health care companies, with about $22 billion in profits last year alone.

“Did you lack the financial resources to implement a multifactoral authentication system?” Barasso asked.

Wyden said the comments showed there was bipartisan support for the committee to further investigate the issue.

“We’ve just heard excuse after excuse from Mr. Witty,” Wyden said. “The fact is, that first server that was hacked did not have multifactor authentication and Mr. Witty’s head of cybersecurity knew about it.”

Brett Callow, an analyst with the cybersecurity firm Emsisoft, said multifactor authentication can stop a significant number of attacks and is a “basic defense mechanism I’d have expected to be implemented.” At the same time, Callow said it’s not absolutely certain that this technology would have blocked the attack.

“Locking your door doesn’t guarantee that a burglar won’t get it, it just makes it less likely,” he said in an email. “Same here.”

The slow timeline for restoring services after the cyberattack shows a clear lack of system redundancy within Change Healthcare, said Sen. Thom Tillis, R-N.C. While holding up a copy of the book “Hacking for Dummies,” Tillis told Witty: “This was some basic stuff that was missed.”

The CEO responded by stressing the relatively short duration of time since UnitedHealth Group acquired Change Healthcare in October 2022. “It’s very frustrating that there wasn’t a quick redundancy switchover,” Witty said.

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Witty was scheduled to testify before a House committee Wednesday afternoon. While the hearings were scheduled in response to the cyberattack, the Washington Post reported Tuesday that there’s growing concern in the nation’s capital about the company’s enormous size is an economic and security liability.

“UnitedHealth is a monopoly on steroids,” Sen. Elizabeth Warren, D-Mass., said during the committee hearing.

Last week, Minnesota Attorney General Keith Ellison and 21 other state attorneys general sent a letter pushing UnitedHealth Group to provide more help for affected health care providers and patients.

In remarks prepared for the House committee, Witty said UnitedHealth Group has advanced more than $6.5 billion in accelerated payments and no-interest, no-fee loans to thousands of health care providers. About one-third of these loans, Witty said, have gone to safety net hospitals and federally qualified health centers that help high-risk patients and communities.

Minnesota health care providers, including small mental health clinics, were critical in the first few weeks after the cyberattack of the company’s initial financial assistance offers. One clinic in Roseville told the Star Tribune that UnitedHealth Group initially offered just $90 per week.

The company rolled out a second program designed to provide more help.

“While some of our early estimates of providers’ potential gaps did not address their full need given our lack of visibility into their claims flow, we quickly adjusted,” Witty said.

©2024 StarTribune. Visit at startribune.com. Distributed by Tribune Content Agency, LLC.

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