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This Insider Trading Case Raises Troubling Questions About Trump’s Commerce Secretary Nominee

Mother Jones

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Wilbur Ross, Donald Trump’s pick for commerce secretary, is a legendary corporate raider who made billions of dollars buying failing companies and flipping them for a profit. But as he built his $2.5 billion fortune, Ross and his private equity firm, WL Ross & Co., have faced several lawsuits and regulatory actions accusing them of financial misconduct, including breach of fiduciary duty and fraud. His controversial business record received some scrutiny during his confirmation process. But one recent lawsuit involving Ross has garnered little attention. And it raises serious ethical questions about the business dealings of the billionaire who, if confirmed by the Senate, will be in charge of promoting job creation and economic growth.

The case, filed in a Florida federal court, involved a publicly traded mortgage company called Ocwen Financial. Ross served as a board member for the firm. In 2013 and 2014, state and federal regulators targeted the company over allegations that it engaged in a variety of improper practices. Ocwen’s stock plummeted, and shareholders suffered major losses. Its stock peaked in 2013 at about $56 per share, and the company is currently trading at about $5. But Ross managed to avoid millions in losses by off-loading his holdings in the company in two curiously timed trades that came shortly before damaging news was revealed that sent Ocwen shares into a tailspin. In the suit, shareholders accused Ross and other company directors of using inside information to enrich themselves and of leaving “ethics, integrity, and fair dealing by the wayside in their quest for ever higher revenues and thus, higher compensation and ever more lucrative incentives for themselves.”

The White House press office and Invesco (which is a corporate parent of WL Ross) did not respond to multiple requests for comment. Ocwen spokesman John Lovallo declined to respond to questions from Mother Jones, but he provided a statement about the company’s corporate governance practices. “Today, the composition, structure, experience and diversity of Ocwen’s Board, which consists of eight members, seven of whom are independent directors, is as strong as any comparable financial services company,” Lovallo wrote. “Ocwen is recognized as the industry leader in responsible home retention through foreclosure prevention.”

Ross’ ties to Ocwen date back to October 2012, when the Atlanta-based company announced plans to acquire mortgage-servicing firm Homeward Residential Holdings from WL Ross & Co. for $766 million in cash and preferred stock. Six months later, Ross joined Ocwen’s board.

The Homeward deal came during an Ocwen buying spree, as the company rapidly scooped up the mortgage-servicing units of big banks and other financial firms following the housing crisis. (Mortgage services are not lenders, but they collect loan payments and initiate foreclosure proceedings if homeowners default.) Ocwen’s business practices—including allegations that it had prematurely foreclosed on homeowners and mishandled loan modifications—placed the company on the radar of regulators, including the New York Department of Financial Services (NYDFS). The agency held up the Homeward sale until December 2012, when Ocwen agreed to two years of independent monitoring to ensure that “reforms are implemented and homeowners have a real chance to avoid foreclosure,” according to the agency’s head, Benjamin Lawsky.

In their lawsuit—a consolidated version of several previously initiated lawsuits was filed in federal court in March 2016—the Ocwen shareholders presented a timeline that they claimed supported their allegations. Through the sale of Homeward, Ross and his firm had received $162 million in Ocwen shares. In September 2013, Ross, on behalf of his private equity firm, sold more than 3.1 million Ocwen shares, at $50.19 a share, netting almost $158 million. Three months later, in December, the Consumer Financial Protection Bureau announced that Ocwen had agreed to pay $2.1 billion to settle charges of mortgage-servicing misconduct dating back to 2009, including hitting homeowners with unauthorized fees and deceiving consumers about foreclosure alternatives and loan modifications. As part of the settlement, Ocwen did not admit to or deny the CFPB’s allegations. Soon afterward, Ocwen’s stock had dropped to $44.14 per share, and it continued its downward slide from there.

The following year, WL Ross sold another large block of Ocwen stock. Once again, the sale came shortly before negative news was announced that sharply affected Ocwen’s stock. On July 14, 2014, WL Ross sold nearly 2 million Ocwen shares back to the company at about $37 a share, netting $72.1 million. On July 31, the company reported poor quarterly returns and within days its shares fell in value by more than 20 percent. Ocwen blamed its subpar earnings on the rising costs of complying with NYDFS’ required monitoring. On August 4, the NYDFS announced it was probing Ocwen for requiring homeowners to pay for “forced-placed insurance”—insurance that is taken out by the lender. By the end of December, Ocwen stock had sunk to about $15 per share. Due to the timing of his trade, Ross and his company avoided $18 million in losses. (The NYDFS investigation led to a broader December 2014 settlement, in which Ocwen agreed to pay a $150 million fine.)

Other Ocwen shareholders were not as lucky as Ross and his firm. Three Ocwen shareholders subsequently filed lawsuits against Ross and other company directors. The subsequently consolidated lawsuit alleged that Ross and two other members of the board of directors ignored “systemic and ongoing” wrongdoing by Ocwen. It claimed that the misconduct had ultimately cost the company more than $2 billion, and that Ross and his co-defendants “sold their personal holdings of Ocwen stock…while having knowledge of material, adverse inside information, in violation of state and federal law and in breach of their fiduciary duties to the Company.” And the suit charged that Ross, his firm, and its related funds “profited handsomely at the Company’s expense and thereby unjustly enriched themselves.” Ross, the suit maintained, was in a particular position to know about Ocwen’s mounting regulatory issues because he was not just a company director but a member of the board’s compliance committee.

Ross and fellow members of this committee had “total access to all documents and information bearing upon the Company’s operations,” the complaint alleged. And they were “personally aware or should have been aware that the Company was not in compliance with legal and regulatory requirements, including…applicable state and federal consumer protection laws and regulations and the multiple agreements and consent decrees made with Ocwen’s regulators, which were regularly breached by the company.”

Despite their knowledge of the company’s financial condition, mortgage-servicing misconduct, and ongoing regulatory actions, Ross and other company directors signed their names to a Securities and Exchange Commission filing in March 2014 affirming that Ocwen was successfully managing its regulatory obligations and reiterating the company’s “previously-announced financial results and financial positions,” according to the complaint.

Ocwen settled the suit in December on behalf of Ross and the other directors, agreeing to pay up to $2.2 million in attorney’s fees and other expenses and to institute a range of corporate governance reforms. As part of the settlement, Ross and the other defendants did not deny or acknowledge wrongdoing.

Lawrence Harris, one of the Securities and Exchange Commission’s chief economists during the George W. Bush administration and now a finance professor at the University of Southern California’s Marshall business school, said that because the Ocwen case was settled instead of going to trial, it is unclear what Ross knew at the time that he made his trades. “When confronted with the fortuitous timing of his sale, careful observers will certainly ask themselves whether Ross had knowledge as to what was going to happen,” Harris says. “If his knowledge was obtained through his insight, then he’s simply a disciplined investor. But if his knowledge was obtained through his position as director of the firm, of course there would be substantial concerns of the ethics of his subsequent sale.”

Harris says Ross’ combined history leaves lingering questions.

“If you had two otherwise identical candidates for commerce secretary, one has this record, the other one doesn’t, there’s no question that you would prefer the candidate who doesn’t have the record,” he says. “At some point you have to ask yourself, if you have a candidate with this type of record, who exactly are we dealing with?”

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This Insider Trading Case Raises Troubling Questions About Trump’s Commerce Secretary Nominee

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What Happens If Obama Loses the Halbig Case?

Mother Jones

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So let’s suppose the Halbig case goes up to the Supreme Court and they rule for the plaintiffs: in a stroke, everyone enrolled in Obamacare through a federal exchange is no longer eligible for subsidies. What happens then? Is Obamacare doomed?

Not at all. What happens is that people in blue states like California and New York, which operate their own exchanges, continue getting their federal subsidies. People in red states, which punted the job to the feds, will suddenly have their subsidies yanked away. Half the country will have access to a generous entitlement and the other half won’t.

How many people will this affect? The earliest we’ll get a Supreme Court ruling on this is mid-2015, and mid-2016 is more likely. At a guess, maybe 12 million people will have exchange coverage by 2015 and about 20 million by 2016. Let’s split the difference and call it 15 million. About 80 percent of them qualify for subsidies, which brings the number to about 12 million. Roughly half of them are in states that would be affected by Halbig.

So that means about 6 million people who are currently getting subsidies would suddenly have them yanked away. It’s even possible they’d have to pay back any tax credits they’d received previously.

So what’s the political reaction? The key point here is that people respond much more strongly to losing things than they do to not getting them in the first place. For example, there are lots of poor people in red states who currently aren’t receiving Medicaid benefits thanks to their states’ refusal to participate in Obamacare’s Medicaid expansion. This hasn’t caused a revolt because nothing was taken away. They just never got Medicaid in the first place.

The subsidies would be a different story. You’d have roughly 6 million people who would suddenly lose a benefit that they’ve come to value highly. This would cause a huge backlash. It’s hard to say if this would be enough to move Congress to action, but I think this is nonetheless the basic lay of the land. Obamacare wouldn’t be destroyed, it would merely be taken away from a lot of people who are currently benefiting from it. They’d fight to get it back, and that changes the political calculus.

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What Happens If Obama Loses the Halbig Case?

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We’re Still at War: Photo of the Day for July 9, 2014

Mother Jones

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The 173rd Airborne Brigade Paratroopers participate in a ceremonial rotation of forces in Latvia. (US Army National Guard Photo by Spc. Cassandra Simonton, 116th Public Affairs Detachment)

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We’re Still at War: Photo of the Day for July 9, 2014

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Whistleblower Suit Alleges Corruption, Cronyism, and Affairs in Gov. Susana Martinez’s Administration

Mother Jones

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A recently unsealed whistleblower lawsuit filed in New Mexico state court makes a series of explosive allegations against appointees of rising GOP star Gov. Susana Martinez, accusing high-ranking officials in her administration of public corruption, mismanagement, and intimidation. It claims that officials at the state’s economic development agency engaged in extramarital affairs that could expose the state to sexual harassment charges and that officials tried to silence employees who reported contracting violations and other wrongdoing.

The 22-page complaint—filed February 10 on behalf of two former state employees—claims that a company co-founded by Martinez appointee Jon Barela, secretary of the New Mexico Economic Development Department, secretly benefited from a state tax credit program. The complaint also alleges that aides to Martinez instructed a state employee to use his personal email for sensitive government work to avoid being subject to public records requests; that Barela and his deputy, Barbara Brazil, ignored waste and mismanagement at the state’s Spaceport project in southern New Mexico; and that Brazil ran several Dairy Queen franchises she had an interest in “while simultaneously being paid by the State of New Mexico.”

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Whistleblower Suit Alleges Corruption, Cronyism, and Affairs in Gov. Susana Martinez’s Administration

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Weather-related blackouts in U.S. doubled in 10 years

Weather-related blackouts in U.S. doubled in 10 years

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The current U.S. electrical grid is a far cry from smart. Climate change and aging infrastructure are leading to an increasing number of blackouts across the country.

A new analysis by the nonprofit Climate Central found that the number of outages affecting 50,000 or more people for at least an hour doubled during the decade up to 2012.  Most of the blackouts were triggered when extreme weather damaged large transmission lines and substations. Michigan had the most outages, followed by Texas, Ohio, Pennsylvania, and Virginia.

Climate CentralClick to embiggen.

Severe rainstorms, which are growing more tempestuous as the globe warms, were blamed for the majority of the weather-related outages.

Climate CentralClick to embiggen.

The researchers listed two main drivers of the trend:

Climate change is, at most, partially responsible for this recent increase in major power outages, which is a product of an aging grid serving greater electricity demand, and an increase in storms and extreme weather events that damage this system. But a warming planet provides more fuel for increasingly intense and violent storms, heat waves, and wildfires, which in turn will continue to strain, and too often breach, our highly vulnerable electrical infrastructure. …

Since 1990, heavy downpours and flooding have increased in most parts of the country, and the trend is most dramatic in the Northeast and Midwest. Some of this heavy rain is likely to be associated with high winds and thunderstorm activity. Researchers have found that these regions have already seen a 30 percent increase in heavy downpours compared to the 1901-1960 average.

Climate CentralClick to embiggen.

Solutions to the problem include more small wind and solar power installations built close to where the electricity is needed — and an overhaul of the country’s overburdened and outmoded grid system.

This research won’t come as a surprise inside the White House. The Obama administration put out a call for more spending on grid infrastructure last year when it published similar findings in its own report.


Source
Weather-Related Blackouts Doubled Since 2003: Report, Climate Central

John Upton is a science fan and green news boffin who tweets, posts articles to Facebook, and blogs about ecology. He welcomes reader questions, tips, and incoherent rants: johnupton@gmail.com.

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Running From the Feds? Don’t Go to Hong Kong

Mother Jones

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Ever since Edward Snowden, the former National Security Agency contractor who went public with details about two government surveillance programs, fled for Hong Kong, many have questioned whether he made the right choice. Why didn’t he go to WikiLeaks’ former base of operations, Iceland, where some information activists are lobbying to grant him asylum? (Here’s why Iceland may not have been a great option.) Why not France, which has an extradition treaty with the United States but, as Slate points out, also has a “history of reluctance to send people into the US criminal justice system”?

Since 2003, 137 countries have extradited or deported 7,066 people to the United States. Mexico, Colombia, and Canada are at the top of the list, according to data from the US Marshals Service. The number of extraditions by country varies widely and likely depends not just on relations with the United States but how many suspects flee there (Mexico and Canada clearly being favorites for fugitives making a run for the border). While Iceland did not send anyone back to the United States during this time, Hong Kong was number 18, with 47 extraditions.

Top 20 Countries that Extradite to the UNITED STATES

  1. Mexico 2,325 extraditions
  2. Colombia 1,272
  3. Canada 867
  4. Dominican Republic 309
  5. United Kingdom 182
  6. Jamaica 142
  7. Costa Rica 132
  8. Spain 124
  9. Germany 113
  10. Netherlands 87
  11. Belize 82
  12. Thailand 62
  13. Panama 60
  14. Israel 58
  15. Poland 54
  16. Philippines 51
  17. France 48
  18. Hong Kong 47
  19. Australia 45
  20. Italy 42

View the full list here.

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Running From the Feds? Don’t Go to Hong Kong

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Could a Chinese carbon cap pave the way for a global climate deal?

Could a Chinese carbon cap pave the way for a global climate deal?

Like sparring siblings, China and the United States — the world’s two biggest carbon dioxide emitters — keep passing the climate-action buck back and forth: “Why should I cut emissions if they don’t have to?” Well, China is either the more mature of the pair, or just majorly sucking up to Mama Earth. The country is reportedly gearing up to set firm limits on greenhouse-gas emissions, seriously weakening one of the U.S.’s go-to excuses for climate inaction.

China’s powerful National Development and Reform Commission has proposed an absolute cap on emissions starting in 2016. The proposal still needs to be accepted by the Chinese cabinet, but experts say the commission’s influence makes it likely to pass. China today also announced the details of trial carbon-trading programs that will roll out in seven regions by 2014. In February, the country had said it would implement a carbon tax, but backed off a few weeks later, saying it will wait until early next year to get started on that.

The commission’s carbon-cap proposal calls for Chinese emissions to peak in 2025, five years earlier than previously planned. RenewEconomy explains:

China has already pledged to cut its emissions intensity – the amount of Co2 it emits per economic unit – by up to 45 per cent by 2020. The significance of an absolute cap is that it promises to rein in emissions even if the economy grows faster than expected.

A Chinese carbon cap could shake up future international climate negotiations, The Independent reports:

It marks a dramatic change in China’s approach to climate change that experts say will make countries around the world more likely to agree to stringent cuts to their carbon emissions in a co-ordinated effort to tackle global warming. …

“Such an important move should encourage all countries, and particularly the other large emitters such as the United States, to take stronger action on climate change. And it improves the prospects for a strong international treaty being agreed at the United Nations climate change summit in 2015,” added Lord [Nicholas] Stern, [chair of the Grantham Research Institute on Climate Change at the London School of Economics.]

The 2015 summit will take place in Paris. Previous U.N. climate talks have played out according to a familiar pattern: high hopes giving way to deadlock and failure. When the world’s largest emitters refuse to agree to limits on emissions, it makes the commitments of smaller countries somewhat pointless. U.K. Energy and Climate Change Secretary Ed Davey told The Independent:

I’m really much more confident than many people about our ability to get an ambitious climate change deal done in 2015. Obama in his second term clearly wants to act on this and there has been a fantastic and dramatic change in America’s position. Taken together with China’s change, the tectonic plates of global climate change negotiations are really shifting.

Claire Thompson is an editorial assistant at Grist.

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Here’s What Lindsey Graham Really Thinks About How We Should Handle Dzhokhar Tsarnaev

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Sen. Lindsey Graham thinks the Boston bombing suspect should be held as an enemy combatant. Dave Weigel isn’t convinced:

The 2001 authorization of force made official a war between the United States and terrorist organizations/state sponsors who could be tied to the 9/11 attacks. Yaser Esam Hamdi was an American citizen caught on the battlefield of Afghanistan, by the Northern Alliance. How do you stretch that case far enough to cover Tsarnaev?

Well, here’s Graham last night on Greta Van Susteren’s show making the case:

GRAHAM: I don’t want to hold him for more than 30 days, but within 30 days he can petition a judge and say, hey, I’m not an enemy combatant….To hold him as an enemy combatant they’d have to prove by a preponderance of the evidence that you’re tied to al-Qaeda, the Taliban, or affiliated groups. Chechnyan Islamic groups are affiliated with al-Qaeda under our laws.

VAN SUSTEREN: So is it enough that he visited Chechnya for six months for you to conclude that there’s a threshold met that he’s part of a group?

GRAHAM: I think so. If I were president of the United States who makes this decision, I would say, this is clearly a mass terrorist attack. Runs down evidence against the older Tsarnaev brother ….All that would allow me as president to say that I want to find out more in the national security legal system, not the criminal justice legal system.

In a statement a few days ago, Graham and a few other senators made the same point he made last night: “any future trial” would be held in a civilian court, but Tsarnaev should be questioned by intelligence analysts in the meantime: “The questioning of an enemy combatant for national security purposes has no limit on time or scope. In a case like this it could take weeks to prepare the questions that are needed to be asked and months before intelligence gathering is completed.”

The emphasis here is a little different than it was on Van Susteren’s show, where she repeatedly mentioned the 30-day limit on questioning. So would Tsarnaev be held for 30 days or would he be held indefinitely? Technically the former, but Graham sure seems to think that indefinitely is a lot more likely, and he’s OK with that.

It’s all moot now, since President Obama has made the decision to keep Tsarnaev in the criminal justice system. As for Graham, he might not want to try Tsarnaev in front of a military commission, but I get the pretty strong impression that he’d be just fine with tossing Tsarnaev in a brig somewhere and keeping him there forever without any trial at all. Adam Serwer has more here.

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Here’s What Lindsey Graham Really Thinks About How We Should Handle Dzhokhar Tsarnaev

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"Veep," Season 2: Douchey and Mean-Spirited Like Washington—But Way Wittier

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“You know, you’re about as annoying as a condom filled with fire ants. How’s that for a fucking metaphor?” Ohio congressman and gubernatorial candidate Roger Furlong snaps at his aide.

“It’s a simile, sir,” the sheepish, twentysomething male aide replies.

“Shut your mouth, you fat girl,” the congressman rejoins, as he fiddles with his smartphone while lumbering out of the vice president’s office.

If you tuned in to any of Season 1, this exchange from the new season should sound thankfully familiar. Season 2 of Armando Iannucci‘s political satire Veep (premiering Sunday, April 14 at 10 p.m. EDT on HBO) is all the things that made the first eight episodes so worthwhile: It’s a roaringly funny, mean-spirited burlesque that plays out like a good episode of The West Wing—if The West Wing were a slur-filled, punk-rock fantasy.

The passionately petty Selena Meyer (played by a pitch-perfect Julia Louis-Dreyfus) is still the American VP who can’t get any love from the press or administration, and can’t get any face time with POTUS. “I’m about to undergo a national ass-kicking, with no legs…and a massive ass,” Selena remarks. Her staff (played by the series regular Matt Walsh, Sufe Bradshaw, Reid Scott, Anna Chlumsky, and Arrested Development alum Tony Hale) help her pencil-push an agenda while clumsily pursuing their own professional self-interest. Veep has a fairly simple vision of American government: All of them (middle-age senators, cynical data crunchers, aloof operatives) are douchey incompetents—vain, power-hungry, self-loathing, foul-mouthed, back-stabbing, and perpetually upset. In this sense, Veep nails down the tone of Washington in the same way that Scrubs painted an honest portrait of medical professionals: It’s an exaggerated, ridiculous depiction that veers on hitting too close to home.

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"Veep," Season 2: Douchey and Mean-Spirited Like Washington—But Way Wittier

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Nelson, Georgia, Passes Meaningless Law Requiring All Households to Own Guns

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Reuters published this story on April Fools’ Day, but it does not appear to be a joke:

A small Georgia town on Monday passed a law requiring the head of each household to own a gun as a way to keep crime down.

The ordinance, approved unanimously by the City Council in Nelson, is symbolic, however, because there is no penalty for violating it, according to Councilman Duane Cronic, who introduced the measure last month.

It serves as an expression of support for gun rights and sends a message to would-be criminals, Cronic said.

The measure was passed amid the debate over gun laws in the United States following the December shooting rampage in which a gunman killed 26 people at a Connecticut elementary school.

The Nelson ordinance exempts convicted felons, residents with physical and mental disabilities and those who do not believe in owning firearms, Cronic said.

Crime in Nelson, which has only one police officer, consists mainly of petty theft, Cronic said.

The measure, dubbed the Family Protection Ordinance, was modeled on a law passed in nearby Kennesaw, Georgia in 1982; towns in Idaho and Utah have considered similar laws. For instance, the 140 residents of Byron, Maine rejected a mandatory gun law last month (the proposal was nixed even by the guy who proposed it, after he concluded he should have simply made it a recommendation).

Because Nelson’s new law is symbolic and unenforceable, there is zero chance of a resident being punished for not buying a gun. It’s like the law in Kentucky that makes it illegal to have ice cream cones in your back pocket. “I likened Nelson’s new law to a security sign that people put up in their front yards,” Cronic told the AP. “I really felt like this ordinance was a security sign for our city.”

The city council’s agenda notes that the ordinance will also serve as “opposition of any future attempt by the federal government to confiscate personal firearms.”

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Nelson, Georgia, Passes Meaningless Law Requiring All Households to Own Guns

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