Thursday, October 24, 2013

Indonesian designers defy stereotypes of Muslim fashion


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Plane fighting Australia fires crashes as cooler weather eases threat

A helicopter drops water on a bushfire approaching homes near the Blue Mountains suburb of Blackheath, located around 70 km (43 miles) west of Sydney, October 23, 2013. REUTERS/David Gray

1 of 4. A helicopter drops water on a bushfire approaching homes near the Blue Mountains suburb of Blackheath, located around 70 km (43 miles) west of Sydney, October 23, 2013.

Credit: Reuters/David Gray

SYDNEY | Thu Oct 24, 2013 2:10am EDT

SYDNEY (Reuters) - A plane dousing wildfires in bushland around the Australia's biggest city, Sydney, crashed into a national park on Thursday, sparking a new fire to add to 55 still burning across the state of New South Wales.

The accident happened as the immediate threat from the fires eased thanks to cooler weather, but the Rural Fire Service (RFS) warned of hot and dry weather ahead as summer hits its peak.

"It's hard to definitely say that (the worst is over) at this stage," said RFS spokeswoman Natalie Sanders. "We have got cooler temperatures today and the winds are slightly lower but with these fires still going, it's hard to say how long they'll go for and whether there will be any further damage."

More than 200 homes have been destroyed in New South Wales since last Thursday, when fires tore through Sydney's outskirts, razing entire streets. One man died from a heart attack while trying to save his home.

The RFS said it held "grave concerns" for the pilot of a water bomber fixed-wing aircraft that crashed in the Budawang National Park, 270 km (170 miles) southwest of Sydney, a wilderness area of steep mountainsides and forests popular with hikers and campers.

Sanders said 20 of the 55 fires still burning on Thursday had yet to be contained by firefighters, who fear strong winds may see three major fires in the Blue Mountains commuter district west of Sydney join up in coming days, creating one massive wildfire.

The fires have so far burned through more than 120,000 hectares (300,000 acres) and have a perimeter of some 1,600 km (990 miles).

Police have arrested several children suspected of starting fires. Other fires were sparked by power lines arcing in strong winds, according to the RFS.

(Reporting by Thuy Ong; Editing by Jane Wardell and Nick Macfie)


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SEC releases 'crowdfunding' rule

The U.S. Securities and Exchange Commission logo adorns an office door at the SEC headquarters in Washington, June 24, 2011. REUTERS/Jonathan Ernst

The U.S. Securities and Exchange Commission logo adorns an office door at the SEC headquarters in Washington, June 24, 2011.

Credit: Reuters/Jonathan Ernst

By Sarah N. Lynch

WASHINGTON | Wed Oct 23, 2013 6:05pm EDT

WASHINGTON (Reuters) - Entrepreneurs and start-up companies looking for investors will be able to solicit over the Internet from the general public under a new proposal issued by U.S. regulators on Wednesday.

The "crowdfunding" proposal, if adopted by the Securities and Exchange Commission, would be a major shift in how small U.S. companies can raise money in the private securities market.

Private companies are currently allowed to solicit only accredited investors - those with a net worth of at least $1 million, excluding the value of their homes, or annual income of more than $200,000.

The crowdfunding rule would let small businesses raise up to $1 million a year by tapping unaccredited investors.

It remains to be seen if the plan goes far enough in limiting regulatory costs so that small businesses find crowdfunding desirable.

The measure would still impose a number of disclosure rules and other requirements on small companies and crowdfunding intermediaries.

Rory Eakin, the chief operating officer and founder of CircleUp, a brokerage that offers crowdfunding opportunities to high-net-worth "accredited" investors, said he was initially optimistic about the proposal until he read the fine print.

"It's hard to imagine attractive companies will take advantage of these proposed rules," he said, citing a raft of concerns including a requirement for companies to file financial statements every year.

SEC commissioners said on Wednesday they hope the plan strikes the right balance between facilitating crowdfunding and protecting investors from possible fraud.

The public will have 90 days to respond to the proposal, which is hundreds of pages long.

"I believe our proposal is generally careful not to add additional, unnecessary frictions into this marketplace," SEC Republican Commissioner Daniel Gallagher said. "That said, the proof is always in the pudding."

Alon Hillel-Tuch, a co-founder and chief financial officer at RocketHub, a crowdfunding platform that is considering registering with the SEC, said that overall he was optimistic about the SEC's plan.

At the same time, he is concerned about aspects of the proposal, such as a requirement that a company raising more than $500,000 provide an audited financial statement.

Some small companies have no historical financials, making it hard to figure out how they would be audited under U.S. accounting standards, Hillel-Tuch said.

JOBS ACT

The SEC's crowdfunding plan is a requirement in the Jumpstart Our Business Startups (JOBS) Act, a 2012 law enacted with wide bipartisan support that relaxes federal regulations to help spur small business growth.

The rule was supposed to be completed 270 days after the law was enacted, but it has been delayed at the SEC by leadership changes, a heavy workload and the difficulties in crafting a workable crowdfunding proposal.

As part of an investor protection measure in the JOBS Act, companies using crowdfunding will still be required to raise the money through regulated broker-dealers, such as CircleUp, or through crowdfunding portals, a new regulatory category at the SEC.

The crowdfunding portals will most likely be self-policed by Wall Street's industry-funded watchdog, the Financial Industry Regulatory Authority, which unveiled its own parallel set of proposed rules on Wednesday.

How many entities might register as crowdfunding portals or brokers is not known. In an early, tentative estimate, the SEC said anywhere from 50 to 100 brokers and portals could initially seek to enter the space after the rule is adopted.

Under the SEC's proposal, crowdfunding portals would be required to provide investors with educational materials and take certain steps to reduce the risk of fraud.

Companies using crowdfunding would also have to make some disclosures about their businesses, such as information about officers and directors, how proceeds from the offering will be used, and financial statements.

In addition, the proposal limits how much money an unaccredited investor can contribute each year, based on certain income thresholds.

The proposal says that investors with a net worth and income of less than $100,000 can contribute only $2,000 or 5 percent of their net worth or income, whichever is greater.

Those with a net worth or income of more than $100,000 can contribute more.

In an effort to reduce burdens on companies and portals, the SEC's plan would not explicitly force them to take steps to verify the income levels and net worth of investors in crowdfunding.

At the same time, the SEC plan would require companies using crowdfunding to release financial statements and other information that could prove costly.

Mat Dellorso, the founder and chief executive of WealthForge, a brokerage involved in crowdfunding, said he saw the SEC's plan as being "middle of the road" with very few surprises, and that he was happy to see the agency making progress.

"Experienced entrepreneurs will have no problem navigating the crowdfunding rules, nor will the intermediaries," he said. "It is the first-time entrepreneurs that will need help."

(Reporting by Sarah N. Lynch; Editing by Karey Van Hall, Andre Greno, Tim Dobbyn and Andrew Hay)


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Bank of America liable for Countrywide mortgage fraud

The logo of the Bank of America is pictured atop the Bank of America building in downtown Los Angeles November 17, 2011. REUTERS/Fred Prouser

The logo of the Bank of America is pictured atop the Bank of America building in downtown Los Angeles November 17, 2011.

Credit: Reuters/Fred Prouser

By Nate Raymond

NEW YORK | Wed Oct 23, 2013 6:57pm EDT

NEW YORK (Reuters) - Bank of America Corp was found liable for fraud on Wednesday over defective mortgages sold by its Countrywide unit, a major win for the U.S. government in one of the few trials stemming from the financial crisis.

After a four-week trial, a federal jury in New York found the bank liable on one civil fraud charge. Countrywide originated shoddy home loans in a process called "Hustle" and sold them to government mortgage giants Fannie Mae and Freddie Mac, the government said.

The four men and six women on the jury also found former Countrywide executive Rebecca Mairone liable on the one fraud charge she faced.

The U.S. Justice Department has said it would seek up to $848.2 million, the gross loss it said Fannie and Freddie suffered on the loans. But it will be up to U.S. District Judge Jed Rakoff to decide on the penalty. Arguments on how the judge will assess penalties are set for December 5.

Any penalty would add to the more than $40 billion Bank of America has spent on disputes stemming from the 2008 financial crisis.

"The jury's decision concerned a single Countrywide program that lasted several months and ended before Bank of America's acquisition of the company," Bank of America spokesman Lawrence Grayson said. "We will evaluate our options for appeal."

Marc Mukasey, a lawyer for Mairone, called his client a "woman of integrity, ethics and honesty," adding they would fight on. "She never engaged in fraud, because there was no fraud," he said.

Wednesday's verdict was a major victory for the Justice Department, which has been criticized for failing to hold banks and executives accountable for their roles in the events leading up to the financial crisis.

The government continues to investigate banks for conduct related to the financial crisis. The verdict comes as the government is negotiating a $13 billion settlement with JPMorgan Chase & Co to resolve a number of probes and claims arising from its mortgage business, including the sale of mortgage bonds.

RISKY LOANS

The lawsuit stemmed from a whistleblower case originally brought by Edward O'Donnell, a former Countrywide executive who stands to earn up to $1.6 million for his role.

The case centered on a program called the "High Speed Swim Lane" - also called "HSSL" or "Hustle" - that government lawyers said Countrywide started in 2007.

The Justice Department contended that fraud and other defects were rampant in HSSL loans because Countrywide eliminated loan-quality checkpoints and paid employees based on loan volume and speed.

The Justice Department said the process was overseen by Mairone, a former chief operating officer of Countrywide's Full Spectrum Lending division. Mairone is now a managing director at JPMorgan.

About 43 percent of the loans sold to the mortgage giants were materially defective, the government said.

Bank of America bought Countrywide in July 2008. Two months later, the government took over Fannie and Freddie.

Bank of America and Mairone denied wrongdoing. Lawyers for the bank sought to show the jury that Countrywide had tried to ensure it was issuing quality loans and that no fraud occurred.

The lawsuit was the first financial crisis-related case against a bank by the Justice Department to go to trial under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA).

The law, passed in the wake of the 1980s savings-and-loan scandals, covers fraud affecting federally insured financial institutions.

The Justice Department, and particularly lawyers in the office of U.S. Attorney Preet Bharara in the Southern District of New York, have sought to dust off the rarely used law and bring cases against banks accused of fraud.

Among its attractions, FIRREA provides a statute of limitations of 10 years and allows the government to bring civil cases for alleged criminal wrongdoing.

Virginia Gibson, a lawyer at the law firm Hogan Lovells, said the Bank of America verdict was a "big deal because it shows the scope of a tool the government has not used frequently since its inception."

Gibson and other lawyers say any appeal by Bank of America would likely focus on a ruling made by the judge before the trial that endorsed a government position that it can bring a FIRREA case against a bank when the bank itself was the financial institution affected by the fraud.

The case was one of three lawsuits in New York where judges had endorsed that interpretation. Banks have generally argued that the interpretation is contrary to the intent of Congress, which they said is more focused on others committing fraud on banks.

Bank of America's case was the first to go to trial, a rarity given that banks more typically choose to settle government claims instead of face a jury. But Bank of America had said that it "can't be expected to compensate every entity that claims losses that actually were caused by the economic downturn."

In a statement, Bharara said Bank of America "chose to defend Countrywide's conduct with all its might and money, claiming there was no case here."

"This office will never hesitate to go to trial to expose fraudulent corporate conduct and to hold companies accountable, particularly when it has caused such harm to the public," Bharara said.

In late afternoon trading, Bank of America shares were down 27 cents at $14.25 on the New York Stock Exchange.

The case is U.S. ex rel. O'Donnell v. Bank of America Corp et al, U.S. District Court, Southern District of New York, No. 12-01422.

(Reporting by Nate Raymond; Additional reporting by Jonathan Stempel; Editing by Leslie Gevirtz)


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Strong new orders lift China HSBC flash PMI to 7-month high in October

An employee works inside a steel factory in Caofeidian on the northeastern coast of China's Hebei province, October 11, 2013. REUTERS/China Daily

An employee works inside a steel factory in Caofeidian on the northeastern coast of China's Hebei province, October 11, 2013.

Credit: Reuters/China Daily

By Natalie Thomas

BEIJING | Thu Oct 24, 2013 12:19am EDT

BEIJING (Reuters) - Strong new orders drove the fastest expansion in China's manufacturing sector in seven months in October, a preliminary survey showed on Thursday, more evidence that the economy is stabilizing although a strong rebound remains elusive.

The flash PMI figure, the earliest reading of China's monthly economic performance, offers some positive news after disappointing export figures and September's manufacturing PMI, which had shown weak domestic demand.

The Markit/HSBC Purchasing Managers Index (PMI) stood at 50.9 in October, above September's final reading of 50.2 and marking a seven-month high. Ten of 11 sub-indices rose.

"China's growth recovery is becoming consolidated into the fourth quarter following the bottoming out in the third quarter" said Qu Hongbin an HSBC economist in a statement.

"This momentum is likely to continue in the coming months, creating favorable conditions for speeding up structural reforms."

New orders rose to 51.6, the highest in seven months and well above the 50 line separating expansion from contraction.

"From what we can see companies have drawn down inventories now, so once you get a little bit of demand you get orders coming in," said Stephen Green, an economist with Standard Chartered bank.

The strong reading lifted Chinese stocks off two-week lows, although investors are jittery about possible policy tightening by the central bank to put a cap on rising inflation and housing prices. Those fears have seen short-term money rates surge this week.

GROWTH SEEN SLOWING

In the first nine months of the year, the $8.5 trillion economy grew 7.7 percent from a year earlier, putting it on track to achieve Beijing's 2013 target of 7.5 percent, which would be the weakest growth in 23 years.

Still, many economists see growth slowing ahead as global demand remains soft and as Beijing restructures the economy towards one driven more by consumer demand than investment and credit.

"Despite the rise of this flash PMI reading, we believe sequential GDP growth peaked in the third quarter at 2.2 percent and people should expect moderation to a more sustainable growth rate of 1.8-2.0 percent in the fourth quarter," said Ting Lu and economist with Bank of America-Merrill Lynch.

The government has repeatedly stated it will accept slower growth during the restructuring, but policymakers have also shown a willingness to step in to keep growth stable.

The flash PMI showed new export orders ticked up only marginally, suggesting a stabilization in global demand but no solid rebound.

Exports unexpectedly fell 0.3 percent in September, as fears of a tapering in U.S. monetary stimulus weighed on demand from Southeast Asia. Exports were a drag on the economy in the first three quarters, subtracting 1.7 percentage points from growth.

Policymakers stated they would support the trade sector if it looked like missing an 8 percent growth target for this year.

Bank of America's Lu urged caution on attaching too much significance to the flash PMI figures.

"We should keep in mind that the HSBC flash PMI is quite volatile and the final reading could vary significantly from the flash," said Lu.

"The HSBC PMI has a quite small sample size with undisclosed number of missing values."

Last month's final PMI figures delivered a shock to the markets, coming in a full point below the flash reading for September.

The flash PMI is based on 85-90 percent of total responses for each month.

(Reporting By Natalie Thomas; Editing by Kim Coghill and John Mair)


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Idaho hiker's body found after search hampered by government shutdown

By Laura Zuckerman

SALMON, Idaho | Thu Oct 24, 2013 2:16am EDT

SALMON, Idaho (Reuters) - The body of a missing hiker has been recovered at Craters of the Moon National Monument and Preserve in central Idaho after a month-long search hampered by the recent U.S. government shutdown.

The remains of Jodean Elliott-Blakeslee, 63, were spotted on Tuesday evening during a helicopter search of the vast lava fields at the National Park Service site where she and her hiking partner, Amelia Linkert, were reported missing on September 24.

Searchers last month found Linkert dead from exposure. An Idaho coroner is determining how Elliott-Blakeslee perished, park officials said.

At its height, the search for the Boise-based physician drew helicopters, dog teams and as many 100 individuals from other U.S. parks, but those efforts were scaled back in part because of a congressional budget impasse that halted government operations on October 1. The government reopened last week after Congress passed a temporary spending measure that President Barack Obama signed into law.

Ted Stout and several other Craters of the Moon workers furloughed during the shutdown nevertheless continued to search for Elliott-Blakeslee across the Idaho park's 750,000 acres of volcanic rifts, cinder cones and underground tunnels carved by ancient lava flows.

"We can't let her down now. This needs to continue," Stout, the park's chief of interpretation and education, said the day after he and park officials were laid off.

(Reporting by Laura Zuckerman; Editing by Steve Gorman and Lisa Shumaker)


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U.S. agencies moving slowly to tighten data security, despite major leaks

The word 'password' is pictured on a computer screen in this picture illustration taken in Berlin May 21, 2013. REUTERS/Pawel Kopczynski

The word 'password' is pictured on a computer screen in this picture illustration taken in Berlin May 21, 2013.

Credit: Reuters/Pawel Kopczynski

By Mark Hosenball

WASHINGTON | Wed Oct 23, 2013 5:24pm EDT

WASHINGTON (Reuters) - Despite saying they suffered major damage from classified documents made public by an Army soldier and a National Security Agency contractor, U.S. government agencies have fallen behind in installing computer software to stop such leaks, U.S. officials say.

Following the disclosure to the WikiLeaks website of hundreds of thousands of sensitive State Department cables and other documents by Army Private Bradley Manning, the White House in 2010 ordered U.S. spy agencies to install programs capable of blocking "insider threats."

Congress wrote the requirement into law in 2011.

But the intelligence agencies have already missed an October 1 deadline for having the software fully in use, and are warning of further delays.

Officials responsible for tightening data security say insider threat-detection software, which logs events such as unusually large downloads of material or attempts at unauthorized access, is expensive to adopt.

It also takes up considerable computing and communications bandwidth, degrading the performance of systems on which it is installed, they said.

James Clapper, the director of national intelligence, acknowledged in closed-door briefings to U.S. lawmakers that putting detection systems in place had proved "more difficult than (intelligence agencies) thought and was taking longer than they anticipated," said a source familiar with the matter.

Reuters reported last week that the National Security Agency failed to install the most up-to-date anti-leak software at its Hawaii operations center before contractor Edward Snowden went to work there and downloaded tens of thousands of highly classified documents.

But after agencies reported they were nowhere close to meeting the October 1 goal set by Congress for having the insider threat-detections systems installed and operational, Congress pushed back the deadline.

The latest law requires the agencies to have the new security measures' basic "initial operating capability" installed by this month and to have the systems fully operational by October 1, 2014.

But U.S. officials acknowledged it was unlikely agencies would be able to meet even that deadline, and Congress would likely have to extend it further. One official said intelligence agencies had already asked Congress to extend the deadline beyond October 2014 but that legislators had so far refused.

A spokesman for the National Counterintelligence Executive, a division of the Office of Director of National Intelligence responsible for security policy, said ODNI was "in the process of evaluating insider-threat programs within the intelligence community."

The spokesman declined to give details of how extensively insider-threat software was operating at intelligence agencies, but insisted, "We're making good progress." He also pointed out that software programs were only one element in a broader set of measures that an insider-threat task force is developing to spot and shut off potential leaks.

Republican Representative Mike Rogers, chairman of the House Intelligence Committee, agreed. "There are other things you can do. Software in and of itself is not the only thing you have," he told Reuters.

Rogers said he believed the spy agencies would meet the October 2014 deadline. "We're not interested in a delay. We already had one delay," he said.

Officials said the amount of money already spent on installing insider threat software was classified.

FALSE POSITIVES AND PARANOIA

Steven Aftergood, a secrecy expert with the Federation of American Scientists, said there were "lots of uncertainties" about the performance of such systems.

"The more ambitious it is, the harder it would be to engineer and to operate, particularly since (intelligence community) employees have many different degrees of authorization that would somehow need to be taken into account," Aftergood said.

"False positives - alarms or flags triggered by unusual but legitimate access and requiring investigation - could easily get out of hand," he said.

He added: "Current efforts to limit and monitor access are at odds with the post-9/11 imperative to promote information sharing, at least within the government. They haven't found the optimal balance yet."

After WikiLeaks' disclosures of documents downloaded by Manning, President Barack Obama's administration set up a task force to recommend measures to improve protection of government secrets.

One key recommendation of the task force, which was based in the White House, was that spy agencies and the Defense and State Departments should develop and install systems to detect efforts by government employees and contractors to access classified material they had no legitimate need to see.

A December 2010 White House "fact sheet" explicitly recommended that spy agencies adopt systems which "will monitor user activity on all IC (intelligence community) classified computer systems to detect unusual behavior."

It also recommended that agencies create "a fully staffed analytic capability" that would "put a human eye on the suspect activity."

Spokesmen for the White House and top U.S. intelligence agencies, including the NSA, CIA and Defense Intelligence Agency, either declined comment on the issue or did not reply to requests for comment.

Another official familiar with the systems and government-wide efforts to step up data security said some agencies had fueled paranoia and resentment among employees by setting up units designed to handle insider threats.

One of the main activities of the units, which can be staffed by contractors rather than government employees, is to receive and investigate tips from employees about allegedly suspicious behavior by other employees.

In some cases, the official said, agencies had moved more quickly to create such anti-leak squads than to install more neutral and impersonal software systems designed to detect unauthorized access attempts. That process has sometimes created resentments, often among information operations personnel who are uncomfortable about having "another group of people looking over their shoulders," the official said.

(Additional reporting by Deborah Charles; Editing by Warren Strobel and Peter Cooney)


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Massachusetts teen pleads not guilty to murdering teacher

A girl lights a candle at a makeshift memorial for teacher Colleen Ritzer outside the high school where she taught in Danvers, Massachusetts October 23, 2013. REUTERS/Brian Snyder

1 of 7. A girl lights a candle at a makeshift memorial for teacher Colleen Ritzer outside the high school where she taught in Danvers, Massachusetts October 23, 2013.

Credit: Reuters/Brian Snyder

By Scott Malone

BOSTON | Thu Oct 24, 2013 2:14am EDT

BOSTON (Reuters) - Massachusetts authorities on Wednesday charged a 14-year-old high school student in the murder of a math teacher after finding the teacher's body in woods near the school.

The student, Philip Chism, pleaded not guilty to the murder charge and was ordered held without bail in a brief proceeding at Salem District Court, according to the clerk's office.

Chism has been charged as an adult, which could subject him to a longer prison sentence in an adult facility if he is found guilty of killing Colleen Ritzer, 24.

Massachusetts law allows people as young as 14 to be charged as adults when the crime is murder.

Police in Danvers, Massachusetts, began an investigation late on Tuesday after receiving calls that a student at the school and a teacher had not gone home, Essex County District Attorney Jonathan Blodgett told reporters on Wednesday.

After discovering blood in a second-floor bathroom, police extended their search to the woods behind the school, where they found Ritzer's body.

"It was apparent that she was a homicide victim," Blodgett said. "This is a terrible tragedy."

Prosecutors said in court papers that an interview of Chism and surveillance video from the school showed that Chism murdered Ritzer and dumped her body behind the school.

Chism stood quietly, stooping slightly and dressed in a white shirt as he was charged on Wednesday.

Ritzer is the second U.S. educator this week to die in an incident involving a student after a Nevada middle school teacher was shot dead by a 12-year-old student on Monday.

Investigators from the local medical examiner's office on Wednesday carried a stretcher out of the woods where Ritzer's body was found.

Police on Tuesday had issued a missing-child report for Chism, who had recently moved to the area from Tennessee. A photo posted on the Danvers Police Department's Facebook page at the time of the search showed a tall, lanky, short-haired Chism wearing a red and black soccer uniform.

He was found walking along a highway about 12:30 a.m. EDT on Wednesday (0430 GMT).

Students from the school left bouquets of flowers, a teddy bear and a note reading "Rest in peace, Ms. Ritzer, you will be missed" in front of the school.

SCHOOLS CLOSED

All public schools in Danvers, which is about 20 miles north of Boston, were closed on Wednesday, although police believed there was no continuing threat to public safety.

"We have no reason to believe there were any other suspects involved," Blodgett said. He declined to comment on how Ritzer was killed or if she might have had any type of relationship with the student.

Ritzer's family issued a brief statement to The Salem News asking for privacy.

"At this time we are mourning the tragic death of our amazing daughter and sister," the family said. "Everyone that knew and loved Colleen knew of her passion, her teaching and how she mentored each and every one of her students."

Ritzer described herself as a "Math teacher often too excited about the topics I'm teaching" on her Twitter account, @msritzermath, where she also posted homework assignments and links to math problems.

In the shooting incident in Nevada on Monday, teacher Michael Landsberry, 45, was shot and killed when he tried to stop the 12-year-old student armed with a handgun after he wounded two fellow students, then later turned the gun on himself.

"We will probably never know all the factors that accumulate to unleash this kind of violence, but we must commit to doing all we can to make sure students and educators are safe in our schools," Dennis Van Roekel, president of the National Education Association, a labor union for school teachers, said in reaction to this week's incidents.

(Additional reporting by Daniel Trotta and Brendan O'Brien; Editing by Paul Thomasch, Gunna Dickson and Cynthia Osterman)


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U.S., Israel differ on how to resolve Iran nuclear issue

U.S. Secretary of State John Kerry (R) poses with Israeli Prime Minister Benjamin Netanyahu at Villa Taverna in Rome October 23, 2013. REUTERS/Gregorio Borgia/Pool

U.S. Secretary of State John Kerry (R) poses with Israeli Prime Minister Benjamin Netanyahu at Villa Taverna in Rome October 23, 2013.

Credit: Reuters/Gregorio Borgia/Pool

By Arshad Mohammed

ROME | Wed Oct 23, 2013 6:00pm EDT

ROME (Reuters) - U.S. and Israeli officials differed over Iran's nuclear program on Wednesday as Israel called for its effective dismantlement and the United States suggested better safeguards could assure that it is peaceful rather than military in nature.

U.S. Secretary of State John Kerry and Israeli Prime Minister Benjamin Netanyahu spoke as they began seven hours of talks that also covered Israeli-Palestinian peace negotiations, which resumed in July after a nearly three-year hiatus.

Hints of a possible U.S.-Iranian rapprochement, including President Barack Obama's phone call with new Iranian President Hassan Rouhani and revived nuclear talks between Tehran and six major powers, have unnerved Arab states and Israel, which see any potential Iranian nuclear arms program as a direct threat.

"Iran must not have a nuclear weapons capability, which means that they shouldn't have centrifuges for enrichment, they shouldn't have a plutonium heavy water plant, which is used only for nuclear weapons," Netanyahu told reporters as he and Kerry began their talks.

"They should get rid of the amassed fissile material, and they shouldn't have underground nuclear facilities, (which are) underground for one reason - for military purposes." He called Iran's program the region's foremost security problem.

The Islamic Republic says it is enriching uranium solely for electricity and medical treatments, not nuclear weapons. But its past concealment of sensitive activities from U.N. inspectors and continued restrictions on monitoring have raised suspicions.

'CRYSTAL-CLEAR' STANDARD

Kerry, whose aides are exploring a diplomatic solution to rein in Iran's nuclear activity, took a tack different from Netanyahu, suggesting Iran could show its program was peaceful by adhering to international standards adopted by other nations.

"It will be vital for Iran to live up to the standards that other nations that have nuclear programs live up to as they prove that those programs are indeed peaceful," he said as the two started meeting at the U.S. ambassador's residence in Rome.

"We will need to know that actions are being taken which make it crystal clear, undeniably clear, fail-safe to the world that whatever program is pursued is indeed a peaceful program," he told reporters.

The United States has refused to rule out the possibility of taking military action against Iran. But U.S. officials say they wish to test every avenue to resolve the issue before going down that path, which could destabilize the Middle East.

"Secretary Kerry reiterated President Obama's determination to prevent Iran from acquiring a nuclear weapon, even as we pursue a diplomatic course," a senior U.S. State Department official said on condition of anonymity after the meeting ended.

Six global powers and Iran held talks last week in Geneva on ways towards a diplomatic deal, their first such negotiations since the June election of Rouhani, a relative moderate, opened doors for compromise after years of escalating confrontation.

Britain, China, France, Germany, Russia and the United States are due to hold a second round of those talks with Iran on November 7 and 8, also in Geneva.

The senior U.S. official said Kerry and Netanyahu had an "in-depth" discussion of Israeli-Palestinian peace negotiations, which resumed on July 29. The United States has said they aim to yield a peace deal within nine months, of which nearly three months have already passed.

The core issues in the more than six-decade dispute include borders, the future of Jewish settlements in the occupied West Bank where Palestinians seek statehood, the fate of Palestinian refugees and the status of Jerusalem.

The senior U.S. official declined to say how much of the meeting was devoted to Middle East peace and how much to Iran, which took up the lion's share of their public comments.

Iran cites a right to refine uranium for peaceful purposes under the nuclear Non-Proliferation Treaty, a 1970 global pact to prevent the spread of nuclear arms.

But the United States has said Iran does not automatically have that right under international law because, it argues, Tehran is in violation of its obligations under counter-proliferation safeguards. A series of U.N. Security Council resolutions since 2006 has demanded that Iran suspend all enrichment and heavy water-related activities.

Iran is building a heavy-water research reactor near the town of Arak, which when operational could yield plutonium and give Iran a potential second route to making fissile material for nuclear bombs, in addition to its enrichment of uranium.

Western experts say, and some diplomats privately acknowledge, that it is no longer realistic to expect Iran to halt all enrichment-related activities, since the Islamic Republic has sharply expanded such work in the past seven years and it is seen as a source of national pride and prestige.

Instead, they say, any deal should set strict, verifiable limits on the number of centrifuges that Iran can have and on the production of low-enriched uranium.

(Writing by Arshad Mohammed; Editing by Mark Heinrich and Peter Cooney)


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Insight: China party's secretive judicial system laid bare in torture case

A paramilitary policeman stands guard at Tiananmen Square near the Great Hall of the People prior to the pre-session of the National People's Congress (NPC) in Beijing March 4, 2013. REUTERS/Kim Kyung-Hoon

A paramilitary policeman stands guard at Tiananmen Square near the Great Hall of the People prior to the pre-session of the National People's Congress (NPC) in Beijing March 4, 2013.

Credit: Reuters/Kim Kyung-Hoon

By Sui-Lee Wee

BEIJING | Wed Oct 23, 2013 7:53pm EDT

BEIJING (Reuters) - As Yu Qiyi's interrogation entered its 39th day, officials from the Chinese Communist Party's anti-corruption watchdog debated how to get a confession out of the detained man, the chief engineer at a state-owned firm in eastern Wenzhou city.

One official noted he had forced Yu's head under water the night before. A day later, Yu died after being dunked repeatedly in a bucket of ice-cold water.

Six officials were convicted last month of torturing Yu to death. Testimony given in the case, seen by Reuters, illustrates the brutality of a secretive detention system for party members and the drive to get confessions as President Xi Jinping presses on with an aggressive anti-corruption campaign.

Lawyers say the case - highly unusual because Yu's interrogators were charged - also renews questions about the legality of the process given rampant abuses in the system.

The party introduced the detention system, called "shuanggui", in 1990 to weed out corrupt members as the temptation to take bribes sky-rocketed on the back of China's nascent economic boom.

Detentions can last indefinitely, with family members often kept in the dark about the fate of their loved ones.

"If there are more corruption investigations, there is greater use of 'shuanggui'," said Nicholas Bequelin of New York-based Human Rights Watch.

"Because of the political premium that is put on the anti-corruption campaign, I assume this will create the incentive for more abuses."

Prominent human rights lawyer Mo Shaoping called "shuanggui" unconstitutional.

"TERRIFIED OF WATER"

Yu, 42, was detained on March 1. It is not precisely clear why he was being investigated. His family's lawyers believe it was possibly related to a land deal.

The court on September 30 sentenced five officials from the party's Central Commission for Discipline Inspection in Wenzhou to between four and 14 years in jail. A sixth official, from the local prosecutor's office, was jailed for eight years.

It was a rare instance of legal punishment handed down over the abuse of a party official detained under "shuanggui", lawyers for Yu's family said. They said the case went to court because of a public outcry over Yu's death as well as the family's doggedness in seeking justice.

One of the convicted officials, Cheng Wenjie, said senior officials from the Central Commission for Discipline Inspection in Wenzhou gave the go-ahead for the water punishment.

"Yu Qiyi was terrified of water," Cheng told investigators in testimony that detailed the debate on how to get Yu to confess.

"If we continue dunking him in water, we might be effective, so the leaders said continue," according to a transcript of his remarks given to the court in the nearby city of Quzhou, where the trial was held.

His testimony and those of others were part of the defense statement given by Chi Susheng, a lawyer for Li Xiang, another of the six accused. Chi posted the testimonies online, where they have gotten little attention.

Wu Qian, Yu's ex-wife, told Reuters she believed Yu was innocent of any graft accusations. Yu, she said, had "thought he was just assisting with the investigation into other people".

She said Yu told her that commission officials had notified him in January 2012 he was being investigated. Wu added she had no contact with him while he was under detention.

The Wenzhou commission did not respond to a request for comment.

BO XILAI HELD FOR 17 MONTHS

Graft oils the wheels of government at almost every level in China, which ranked 80th out of 176 countries and territories on Transparency International's corruption perceptions index, where a higher ranking means a cleaner public sector.

Nearly all senior government personnel as well as top executives at state-run firms are members of the Communist Party.

Like his predecessors, Xi Jinping has warned that corruption threatens the party's very existence.

Spearheading his crackdown on graft is Wang Qishan, head of the Central Commission for Discipline Inspection.

Wang warned party investigators on Wednesday that their jobs were on the line if they failed to root out corruption, telling them to use "shock and awe" on their targets, in comments published on the commission's website. He gave no details on tactics to get results.

Xi himself has vowed to catch high-flying "tigers" as well as low-ranked "flies".

"Shuanggui" is used for both.

Ousted politician Bo Xilai, sentenced to life in jail last month for corruption and abuse of power, was held for 17 months. In court, he recanted an earlier confession to party investigators saying it was made due to psychological pressure.

Two other party officials died while in detention between April and June this year, according to a lawyer involved in those cases who declined to be identified for fear of retribution.

Commission officials in Beijing declined to comment.

Party members suspected of corruption first go into "shuanggui" as opposed to police detention.

Nearly all are forced to confess, said a lawyer who has represented eight clients held under the system.

"This tool has become a knife hanging over the head of every party member," said the lawyer, who declined to be identified as he has been warned by authorities not to speak to foreign media.

"It makes the people below obedient."

Once a confession had been extracted, most cases are handed to the judiciary, added Mo Shaoping, the human rights lawyer.

"WE ARE ALL ANTS"

The brutality against Yu drew public outrage. Photos of his bruised corpse were put on the Internet by his family before the six officials were indicted.

One Chinese netizen posted an online comment calling the abuse of Yu "fascist". Another said: "In the face of strong power, we are all ants, there's no exception even for people within the system."

Even official news agency Xinhua weighed in, saying in an online posting that "if you do not lock power into the system's cage, it will be difficult for anyone to feel a sense of security".

This week, China's prosecutor-general, Cao Jianming, said some investigators relied too much on confessions rather than evidence, although he did not refer to the party's detention system.

The cause of Yu's death was "inhalation of liquids leading to pulmonary dysfunction", according to the defense statement from Chi, the lawyer representing one of the accused.

"When I arrived at the scene, I was very shocked because he had changed dramatically, he was emaciated," said Yu's ex-wife, Wu. "The doctor told me there was no point in resuscitating him, there was no hope."

One official responsible for guarding Yu testified that he beat the detainee on a number of occasions.

"Because he wasn't honest, (I) beat him twice," said Yang Huan. "Each time, (I) slapped him about two to three times. After that, (I) dragged him once to the toilet and slapped him about four to five times."

On March 13, when Yu nodded off to sleep, another guard kicked him, according to testimony from Zhang Yuexiang, a worker assigned to watch over Yu.

ONE DETAINEE RECOUNTS SUICIDE ATTEMPT

Lawyers and scholars familiar with "shuanggui" said they were not aware of any data on the number of party members who had been detained under the system. But they say it's a frequent practice.

"There's definitely a correlation between shuanggui and Xi Jinping's anti-graft campaign because the disciplinary commission will first use shuanggui and then pursue judicial proceedings. It's a useful tool for the government," said human rights lawyer Si Weijiang, who is advising Yu's family.

"There's no time constraints, there are no legal rules to follow, the person in shuanggui has no right to a lawyer."

The former head of a police station in eastern Jiangsu province who was held for 42 days in 2004 told Reuters he tried to commit suicide because of the abuse he suffered.

"They hung a 20-kg sandbag around my neck to try to force me to admit I had taken bribes," he said. "When you experience those kinds of things, you want to commit suicide but they made me wear a helmet so that I couldn't smash my head against the wall in an attempt to die."

The former officer, who declined to be identified for fear of retribution, said he eventually confessed. He said the case was the result of a personal vendetta from a former colleague.

The officer, now 48, said he was sentenced to a year in jail for bribery.

The Central Commission for Discipline Inspection in Jiangsu did not respond to a faxed query from Reuters.

But an interrogator in Chongqing - the southwestern city run by Bo Xilai before his downfall - defended the detention system, saying abuses were not the norm.

"It's just colleagues having a discussion, we don't have any right to come into physical contact with them," said the interrogator, surnamed Wang, who declined to give his full name. "We have basic procedures and measures that we must follow."

In the early hours of April 9, the six officials in Wenzhou panicked when they heard Yu had died in hospital, according to testimony by Cheng Wenjie, one of the convicted officials.

Cheng said Liu Xianfeng, a senior official within the Wenzhou commission, told him and two others to accept responsibility for the case "because the leaders said the fewer people who are involved, the better".

One official who testified to police, Chen Zheyi, said that Liu had told him to delete surveillance footage of Yu's questioning. Liu could not be reached for comment.

When asked by police why he gave instructions to do so, Liu said in testimony that he did not want to involve too many people.

"Whoever I can protect, I should protect," Liu said. "Besides, it's not good for the media to get wind of this."

(Additional reporting by Beijing Newsroom. Editing by Dean Yates)


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Russia reduces charges against Greenpeace activists over Arctic protest

Greenpeace International activist Dimitri Litvinov, one of the ''Arctic 30'' detained on piracy charges, attends his bail hearing at the Regional Court of Murmansk October 23, 2013. REUTERS/Igor Podgorny/Greenpeace/Handout via Reuters

1 of 3. Greenpeace International activist Dimitri Litvinov, one of the ''Arctic 30'' detained on piracy charges, attends his bail hearing at the Regional Court of Murmansk October 23, 2013.

Credit: Reuters/Igor Podgorny/Greenpeace/Handout via Reuters

By Steve Gutterman

MOSCOW | Wed Oct 23, 2013 4:39pm EDT

MOSCOW (Reuters) - Russia on Wednesday dropped piracy charges against 30 people involved in a Greenpeace protest against Arctic oil drilling, replacing them with lesser offences and cutting the maximum jail sentence they face to seven years from 15.

The charges against activists who protested at a Gazprom oil platform off Russia's northern coast last month have been changed from piracy to hooliganism, the federal Investigative Committee said in a statement.

Greenpeace said the new charges were still "wildly disproportionate" and promised to contest them.

All 30 people who were aboard the Greenpeace ship Arctic Sunrise during the September 18 protest, in which activists tried to scale the Prirazlomnaya platform, are being held in detention in the northern Murmansk region until at least late November.

The Investigative Committee said it had begun the procedure of pressing the new charges, which carry a maximum sentence of seven years in prison. The piracy charges were punishable by 10 to 15 years.

Greenpeace called the hooliganism charge "nothing less than an assault on the very principle of peaceful protest".

"This is still a wildly disproportionate charge that carries up to seven years in jail," Vladimir Chuprov of Greenpeace Russia said in a statement.

"We will contest the trumped up charge of hooliganism as strongly as we contested the piracy allegations. They are both fantasy charges that bear no relation to reality," he said. "The (activists) are no more hooligans than they were pirates."

Russian President Vladimir Putin has said the activists were clearly not pirates but that they violated international law.

MORE CHARGES POSSIBLE

The Investigative Committee dismissed Greenpeace's claim that the protest was peaceful, saying "anyone who illegally and premeditatedly seizes ... a stationary platform is committing a crime, no matter what their motive".

The committee said the investigation was continuing and reiterated an earlier statement that it could still bring additional severe charges against some of the activists, including the use of force against representatives of the state.

Courts in the Russian city of Murmansk have denied bail to the people of 18 different nationalities who were detained - 28 activists, including the crew of the Arctic Sunrise, and two freelance journalists who were documenting the protests.

Greenpeace has said the arrests and charges are meant to frighten off campaigners protesting against drilling in the Arctic, a region Putin describes as crucial to Russia's economic future and its security.

Moscow says the environmental protesters violated a security zone around Prirazlomnaya, which is Russia's first offshore oil platform in the Arctic and is scheduled to begin production by the end of the year after delays.

The United States believes "the purpose and nature of the actions taken by the defendants in attempting a peaceful protest should be fully taken into account as the Russian investigation proceeds," U.S. State Department spokeswoman Marie Harf said.

"We are going to continue monitoring it closely," she said at a daily briefing. The captain of the Dutch-registered Arctic Sunrise and another activist are American, and Harf said U.S. diplomats had visited both of them since their detention.

Earlier on Wednesday, Russia said it would not take part in a case filed with the International Tribunal for the Law of the Sea in which the Dutch government is seeking the release of the activists pending trial.

(Additional reporting by Lesley Wroughton in Washington; Writing by Steve Gutterman; Editing by Alison Williams and Tom Pfeiffer)


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Germany says U.S. may have monitored Merkel's phone

Germany's Chancellor Angela Merkel uses her mobile phone before a meeting at a European Union summit in Brussels December 9, 2011. REUTERS/Yves Herman

Germany's Chancellor Angela Merkel uses her mobile phone before a meeting at a European Union summit in Brussels December 9, 2011.

Credit: Reuters/Yves Herman

By Noah Barkin

BERLIN | Wed Oct 23, 2013 6:52pm EDT

BERLIN (Reuters) - The German government has obtained information that the United States may have monitored the mobile phone of Chancellor Angela Merkel and she called President Barack Obama on Wednesday to demand an immediate clarification, her spokesman said.

In a strongly worded statement, the spokesman said Merkel had told Obama that if such surveillance had taken place it would represent a "grave breach of trust" between close allies.

"She made clear that she views such practices, if proven true, as completely unacceptable and condemns them unequivocally," the statement read.

White House spokesman Jay Carney, responding to the news in Washington, said Obama had assured Merkel that the United States "is not monitoring and will not monitor" the communications of the chancellor.

When pressed on whether spying may have occurred in the past, a White House official declined to elaborate on the statement.

"I'm not in a position to comment publicly on every specific alleged intelligence activity," the official said.

The news broke as Secretary of State John Kerry, on a visit to Rome, faced fresh questions about mass spying on European allies, based on revelations from Edward Snowden, the fugitive former U.S. intelligence operative granted asylum in Russia.

French President Francois Hollande is pressing for the U.S. spying issue to be put on the agenda of a summit of European leaders starting on Thursday.

He also called Obama earlier this week after French newspaper Le Monde reported that the National Security Agency (NSA) had collected tens of thousands of French phone records in a single month between December 2012 and January 2013.

The NSA appeared to be targeting people tied to French business and politics as well as individuals suspected of links to terrorism, the paper said.

Merkel is not the only foreign leader whose personal communications may have been monitored by the United States. Last month Brazilian President Dilma Rousseff called off plans for an October state visit to Washington because of similar revelations.

DIFFERENT ATMOSPHERE

On a June visit to Berlin, Obama defended U.S. anti-terrorism tactics, telling reporters at a joint news conference with Merkel that Washington was not spying on ordinary citizens.

Revelations before the trip of a covert U.S. Internet surveillance program, code-named Prism, caused outrage in a country where memories of the eavesdropping East German Stasi secret police are still fresh.

"Trust is an important currency in political relations, and while Merkel is an extremely rational person and would probably assume Obama didn't know about this, it will create a different atmosphere between the two," said Volker Perthes of the German Institute for International and Security Affairs in Berlin.

The revelations may hamper efforts to clinch a new free trade accord between the United States and Europe by the end of next year.

Earlier this month, a second round of negotiations on the deal was canceled because of the U.S. government shutdown. Reports the U.S. bugged EU offices have also cast a cloud over the talks.

A German official, requesting anonymity, said the government had been alerted to the latest spying activities by Der Spiegel, a weekly magazine which had obtained a U.S. document with Merkel's telephone number on it. Germany then confronted U.S. officials with the document.

"Between close friends and partners, as Germany and the U.S. have been for decades, there should not be such monitoring of the communications of a government leader," said Merkel's spokesman in the statement. "This would be a grave breach of trust. Such practices should be immediately stopped."

The White House statement said Merkel and Obama had agreed to intensify cooperation between the U.S. and German intelligence services to protect the security of both countries.

"The United States greatly values our close cooperation with Germany on a broad range of shared security challenges," Carney said. "As the President has said, the United States is reviewing the way that we gather intelligence to ensure that we properly balance the security concerns of our citizens and allies with the privacy concerns that all people share."

(Additional reporting by Sarah Marsh and Andreas Rinke; Editing by Will Waterman and Giles Elgood)


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Bank of America liable for Countrywide mortgage fraud

The logo of the Bank of America is pictured atop the Bank of America building in downtown Los Angeles November 17, 2011. REUTERS/Fred Prouser

The logo of the Bank of America is pictured atop the Bank of America building in downtown Los Angeles November 17, 2011.

Credit: Reuters/Fred Prouser

By Nate Raymond

NEW YORK | Wed Oct 23, 2013 6:57pm EDT

NEW YORK (Reuters) - Bank of America Corp was found liable for fraud on Wednesday over defective mortgages sold by its Countrywide unit, a major win for the U.S. government in one of the few trials stemming from the financial crisis.

After a four-week trial, a federal jury in New York found the bank liable on one civil fraud charge. Countrywide originated shoddy home loans in a process called "Hustle" and sold them to government mortgage giants Fannie Mae and Freddie Mac, the government said.

The four men and six women on the jury also found former Countrywide executive Rebecca Mairone liable on the one fraud charge she faced.

The U.S. Justice Department has said it would seek up to $848.2 million, the gross loss it said Fannie and Freddie suffered on the loans. But it will be up to U.S. District Judge Jed Rakoff to decide on the penalty. Arguments on how the judge will assess penalties are set for December 5.

Any penalty would add to the more than $40 billion Bank of America has spent on disputes stemming from the 2008 financial crisis.

"The jury's decision concerned a single Countrywide program that lasted several months and ended before Bank of America's acquisition of the company," Bank of America spokesman Lawrence Grayson said. "We will evaluate our options for appeal."

Marc Mukasey, a lawyer for Mairone, called his client a "woman of integrity, ethics and honesty," adding they would fight on. "She never engaged in fraud, because there was no fraud," he said.

Wednesday's verdict was a major victory for the Justice Department, which has been criticized for failing to hold banks and executives accountable for their roles in the events leading up to the financial crisis.

The government continues to investigate banks for conduct related to the financial crisis. The verdict comes as the government is negotiating a $13 billion settlement with JPMorgan Chase & Co to resolve a number of probes and claims arising from its mortgage business, including the sale of mortgage bonds.

RISKY LOANS

The lawsuit stemmed from a whistleblower case originally brought by Edward O'Donnell, a former Countrywide executive who stands to earn up to $1.6 million for his role.

The case centered on a program called the "High Speed Swim Lane" - also called "HSSL" or "Hustle" - that government lawyers said Countrywide started in 2007.

The Justice Department contended that fraud and other defects were rampant in HSSL loans because Countrywide eliminated loan-quality checkpoints and paid employees based on loan volume and speed.

The Justice Department said the process was overseen by Mairone, a former chief operating officer of Countrywide's Full Spectrum Lending division. Mairone is now a managing director at JPMorgan.

About 43 percent of the loans sold to the mortgage giants were materially defective, the government said.

Bank of America bought Countrywide in July 2008. Two months later, the government took over Fannie and Freddie.

Bank of America and Mairone denied wrongdoing. Lawyers for the bank sought to show the jury that Countrywide had tried to ensure it was issuing quality loans and that no fraud occurred.

The lawsuit was the first financial crisis-related case against a bank by the Justice Department to go to trial under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA).

The law, passed in the wake of the 1980s savings-and-loan scandals, covers fraud affecting federally insured financial institutions.

The Justice Department, and particularly lawyers in the office of U.S. Attorney Preet Bharara in the Southern District of New York, have sought to dust off the rarely used law and bring cases against banks accused of fraud.

Among its attractions, FIRREA provides a statute of limitations of 10 years and allows the government to bring civil cases for alleged criminal wrongdoing.

Virginia Gibson, a lawyer at the law firm Hogan Lovells, said the Bank of America verdict was a "big deal because it shows the scope of a tool the government has not used frequently since its inception."

Gibson and other lawyers say any appeal by Bank of America would likely focus on a ruling made by the judge before the trial that endorsed a government position that it can bring a FIRREA case against a bank when the bank itself was the financial institution affected by the fraud.

The case was one of three lawsuits in New York where judges had endorsed that interpretation. Banks have generally argued that the interpretation is contrary to the intent of Congress, which they said is more focused on others committing fraud on banks.

Bank of America's case was the first to go to trial, a rarity given that banks more typically choose to settle government claims instead of face a jury. But Bank of America had said that it "can't be expected to compensate every entity that claims losses that actually were caused by the economic downturn."

In a statement, Bharara said Bank of America "chose to defend Countrywide's conduct with all its might and money, claiming there was no case here."

"This office will never hesitate to go to trial to expose fraudulent corporate conduct and to hold companies accountable, particularly when it has caused such harm to the public," Bharara said.

In late afternoon trading, Bank of America shares were down 27 cents at $14.25 on the New York Stock Exchange.

The case is U.S. ex rel. O'Donnell v. Bank of America Corp et al, U.S. District Court, Southern District of New York, No. 12-01422.

(Reporting by Nate Raymond; Additional reporting by Jonathan Stempel; Editing by Leslie Gevirtz)


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In Detroit bankruptcy trial, union says city had pensions in sight

The skyline of Detroit is seen looking south from the midtown area in Detroit, Michigan October 23, 2013. REUTERS/Rebecca Cook

The skyline of Detroit is seen looking south from the midtown area in Detroit, Michigan October 23, 2013.

Credit: Reuters/Rebecca Cook

By Joseph Lichterman and Bernie Woodall

DETROIT | Wed Oct 23, 2013 6:58pm EDT

DETROIT (Reuters) - A trial on Detroit's eligibility for bankruptcy protection kicked off on Wednesday with opponents claiming the city tried to bypass restrictions on cutting workers' pensions, as experts in municipal bankruptcy around the country watched closely in a case that could set important precedents.

At issue is whether Detroit, which in July filed the largest municipal bankruptcy in U.S. history, negotiated in good faith before it sought protection from its creditors.

The city says that there is no alternative to bankruptcy, that no other solution exists to rescue Detroit from its deep financial troubles.

Attorneys for labor unions, retirees, and the city's pension fund argued that the city and the state of Michigan were so hell-bent on filing for bankruptcy that Detroit's emergency manager, Kevyn Orr, failed to meet requirements for a proper filing.

U.S. Bankruptcy Judge Steven Rhodes, who is presiding over the trial, gave Detroit and its opponents three weeks to file written arguments on what may be a key point of contention in the case: What constitutes "good faith" bargaining.

The trial, which pits retirees, pension funds and unions trying to preserve retirement benefits for workers against the city, has become a touchstone for a city that has seen corruption, poor management and a declining population base contribute to a sense of stagnation and decline.

Outside the Theodore Levin U.S. Courthouse in downtown Detroit Wednesday morning, about 300 protesters rallied, most of them union members who face cuts to their pension benefits under Orr's plan.

"Hands off our pensions! Take it from the banks!" they chanted as they carried signs and shouted slogans saying that banks and not people should be made to feel the pain if the city cuts pension payments or other outlays.

Orr, appointed by Michigan Governor Rick Snyder as the city's emergency manager, has said he hopes to use federal bankruptcy to repair Detroit's troubled finances.

Unions and pension funds claim that negotiations outside of bankruptcy would lead to the best outcome for a city facing $18.5 billion in debt, declining population, a high crime rate and a breakdown in urban infrastructure.

Bruce Bennett, in an opening statement, said the city needs bankruptcy for the good of its financial health and the well-being of its citizens, saying that tax increases and other revenue-generating measures are not an answer.

"There's nothing left to do here," Bennett said, arguing that the city is insolvent. "There's no revenue solution."

Labor officials disagreed.

Babette Ceccotti, representing the United Auto Workers union, in her opening statement said the city had a "deliberate plan" to use bankruptcy to restructure its debts because it would allow it to pre-empt the state constitution which stipulates that pensions cannot be reduced.

"We think that by connecting all the dots here, the plan was to use Chapter 9," she said.

The trial is expected to extend at least into next week. Rhodes has scheduled 10 days of hearings over three weeks. He likely will not rule whether the city was eligible to file for bankruptcy until at least mid-November.

Rhodes will decide whether Detroit is eligible to restructure its debts and liabilities under Chapter 9 of the U.S. bankruptcy code, which gives cities wide latitude in how to deal with creditors and grants the court broad powers to resolve disputes.

THE CITY'S INSOLVENT. NO IT ISN'T.

None of the parties question whether Detroit is in deep trouble. More than one-third of the city's residents live below the government poverty line. There are some 78,000 abandoned structures and just 40 percent of the street lights work. The population has shrunk to less than 700,000, from a peak of 1.8 million in 1950, and only 53 percent of property owners paid their 2011 property taxes.

The city filed the case on July 18, and it said about half of its liabilities stem from retirement benefits, including $5.7 billion for healthcare and other obligations, and $3.5 billion involving pensions.

Whether those troubles amount to bankruptcy under federal law is legal question, not a financial one.

To prove its eligibility for a Chapter 9, Detroit must show it had proper authorization to file the case; is financially insolvent; negotiated in good faith with its creditors or had so many creditors that such negotiations were not feasible, and requires bankruptcy protection in order to deal with $18 billion in debt and other liabilities.

Prominent politicians and other public officials are expected to testify in the trial, Orr and Snyder among them.

Detroit Police Chief James Craig also is expected to testify this week about the city's poor public services, including its sorely strained police department.

Many bankruptcy experts say Rhodes is likely to find Detroit eligible. But Rhodes' ultimate ruling is hardly a foregone conclusion.

How Rhodes rules, and how the city restructures its debt, may set precedents for other struggling municipalities, bankruptcy experts said.

Detroit's case is closely watched nationally, especially by other U.S. cities considering bankruptcy because of their inability to solve underfunded pensions, strained labor relations and "some politicians not able to say no to employees and retirees," said Kenneth Klee of Klee, Tuchin, Bogdanoff & Stern in Los Angeles, who is representing Jefferson County, Alabama, in its Chapter 9 case.

UNION OBJECTIONS

A lawyer representing the city's pension funds said in court on Wednesday that the city and the governor's office were fully intent on filing for bankruptcy without negotiating with the city's unions.

Jennifer Green, of law firm Clark Hill, displayed copies of emails and documents from city and state officials that she said show the city had planned weeks ahead of time to file for bankruptcy on July 19.

She said that Orr used a pencil to change the filing date on legal documents, to show a date of July 18, in order to beat a state court filing that had the potential to prevent the federal bankruptcy action.

Anthony Ullman, attorney for a committee representing the 23,500 city retirees, said Detroit could monetize assets that include its water and sewer system, or some works in the Detroit Institute of Arts to avoid bankruptcy.

City attorney Bennett countered, stating no sale of art assets would be possible without "significant change in the current management of the museum or litigation," he said.

(Reporting by Joseph Lichterman and Bernie Woodall in Detroit; Additional reporting by Tom Hals in Wilmington, Del. and Nick Brown in New York; Editing by David Greising, Tim Dobbyn and Leslie Adler)


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Pakistan prime minister urges Obama to end drone strikes

U.S. President Barack Obama shakes hands with Pakistan's Prime Minister Nawaz Sharif in the Oval Office at the White House in Washington October 23, 2013. REUTERS/Larry Downing

1 of 6. U.S. President Barack Obama shakes hands with Pakistan's Prime Minister Nawaz Sharif in the Oval Office at the White House in Washington October 23, 2013.

Credit: Reuters/Larry Downing

WASHINGTON | Wed Oct 23, 2013 6:51pm EDT

WASHINGTON (Reuters) - Pakistani Prime Minister Nawaz Sharif on Wednesday urged U.S. President Barack Obama to end drone strikes in Pakistan, touching on a sore subject just as relations between the two countries improve after years of suspicion over Afghanistan and the U.S. counterterrorism fight.

"I ... brought up the issue of drones in our meeting, emphasizing the need for an end to such strikes," Sharif told reporters after meeting with Obama in the Oval Office.

Relations were badly strained following the 2011 Navy SEAL raid that killed al Qaeda chief Osama bin Laden deep inside Pakistan where he was in hiding. But they appear to be on the mend as the United States prepares to pull forces out of Afghanistan in 2014.

The United States has quietly restarted security assistance to Pakistan after freezing aid during the period of soured relations, when Washington frequently voiced complaints about the ties of the Pakistani intelligence service to militant groups active in Afghanistan.

A series of major setbacks in recent years included a 2011 NATO air strike that mistakenly killed Pakistani border guards and another incident that year in which a CIA contractor killed two men on the streets of Lahore.

Obama acknowledged tensions and "misunderstandings" between the two countries. He said he and Sharif had pledged to work together on security issues in ways that "respect Pakistan's sovereignty."

"We committed to working together and making sure that rather than this being a source of tension between our two countries, this can be a source of strength for us working together," Obama said.

Sharif was elected prime minister in June in a historic election that marked Pakistan's first civilian transfer of power after the completion of a full term by a democratically elected government. He is the first Pakistani leader to visit the White House in five years.

"To see a peaceful transition of one democratically elected government to another was an enormous milestone for Pakistan," Obama said.

Much of U.S. security aid to Pakistan is intended to bolster the ability of its military to counter militants in semi-autonomous tribal areas.

For fiscal year 2014, which began on October 1, Obama has requested $1.162 billion from Congress for Pakistan, including $857 million in civilian aid and $305 million in security assistance.

The U.S. use of armed drones to attack suspected militants in Pakistan has long been controversial although the number of incidents has dropped in recent months.

The issue came up again this week when Amnesty International and Human Rights Watch accused the United States of breaking international law by killing civilians in missile and drone strikes intended for militants in Pakistan and Yemen.

White House spokesman Jay Carney called it "a hard fact of war" that U.S. strikes sometimes result in civilian casualties but said drone strikes do so far less than conventional attacks. The United States takes pains to make sure any such strikes conform to domestic and international law, he said.

(Reporting by Mark Felsenthal; Editing by Jim Loney)


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White House steps up damage control on healthcare rollout

U.S. President Barack Obama stands with Affordable Care act registrants and beneficiaries as he speaks about healthcare from the Rose Garden of the White House in Washington October 21, 2013. REUTERS/Jason Reed

U.S. President Barack Obama stands with Affordable Care act registrants and beneficiaries as he speaks about healthcare from the Rose Garden of the White House in Washington October 21, 2013.

Credit: Reuters/Jason Reed

By David Lawder and Mark Felsenthal

WASHINGTON | Wed Oct 23, 2013 7:18pm EDT

WASHINGTON (Reuters) - The White House sought to limit the political damage from the troubled rollout of the government's healthcare website on Wednesday as Republicans increased the pressure to delay parts of President Barack Obama's signature domestic policy.

Obama administration officials held a closed-door briefing for Democrats in the House of Representatives and a private session with insurance company executives to discuss efforts to fix the Healthcare.gov website.

Republican critics in Congress demanded a delay in a requirement of the healthcare law that uninsured Americans must purchase insurance or face a tax penalty and said they would intensify their investigations into the launch of the 2010 Affordable Care Act, known as "Obamacare."

"It is our job to hold them accountable, and when it comes to Obamacare clearly there is a lot to hold accountable," House of Representatives Speaker John Boehner told reporters on Wednesday.

The administration is trying to preserve Democratic Party unity on the issue, which showed signs of fraying. The head of the Democratic National Committee, Representative Debbie Wasserman Schultz of Florida, told MSNBC the administration should be willing to extend the open-enrollment period for people to sign up for insurance. It ends on March 31.

Representative James Clyburn of South Carolina, the third-ranking House Democrat, criticized the website for forcing consumers to provide private information before deciding what kind of health insurance plan they want to buy.

"I've talked to too many people who tell me before they ever get around to figuring out what it is they want to buy, they're having to answer questions that they don't feel they should be answering," Clyburn said.

Max Baucus, the Democratic chairman of the Senate Finance Committee, said in a statement that he hopes to meet with other committee members in the coming weeks, but said he would wait until after the website is repaired.

Republicans are not waiting. The House Energy and Commerce Committee on Thursday will hear from the top contractors responsible for the program, including website developer CGI Federal.

'WORKING HARD TO FIX THE PROBLEMS'

Online exchanges, or marketplaces, were designed to be the main way for millions of uninsured Americans to research and buy health insurance plans under the law, but the October 1 debut has been marred by technical glitches that have kept many from signing on and making purchases. Those unable to sign up online can call a toll-free telephone number as an alternative.

The administration has so far declined to disclose the number of enrollments, either online or by telephone.

A prolonged delay in getting Healthcare.gov to work could jeopardize White House efforts to sign up as many as 7 million people in 2014, the first full year the law takes effect. The administration this week began what it called a "tech surge," bringing in experts led by the administration's top economic aide Jeffrey Zients to analyze and fix the problems.

"I think what we learned is they're working hard to fix the problems," Representative Sander Levin of Michigan, senior Democrat on the House Ways and Means Committee, said after Wednesday's briefing.

The Health and Human Services Department will begin regular news briefings on Thursday to provide updates on "the progress that's being made and on the efforts that are being undertaken, both to address the technical problems and to make the whole experience for American consumers better," White House spokesman Jay Carney said.

House Democrats said there was no discussion in the briefing about whether the problems should lead to a delay of the individual requirement that every American have insurance or pay a tax penalty. The Congressional Budget Office has estimated a delay would reduce enrollment significantly.

REPUBLICANS DEMAND DELAY

Republicans, who have fought the healthcare law as an unwarranted extension of the federal government, said the requirement should be delayed until the problems with the rollout are resolved.

"With so many unanswered questions and the problems arising around this rollout, it doesn't make any sense to impose this one percent mandate tax on the American people," House Republican Leader Eric Cantor told reporters on Wednesday.

Republicans have repeatedly tried to derail or delay the healthcare law since taking control of the House in the 2010 elections. They demanded more answers on Wednesday about the scope of the problems.

Three committees in the Republican-controlled House have announced investigations of the law's rollout, which Cantor described as "nothing short of a debacle."

HHS Secretary Kathleen Sebelius has been the focal point of criticism and Republicans have demanded she step down, but so far the White House has rallied around her.

Denis McDonough, the White House chief of staff, told the New York Times on Tuesday that Sebelius "has the president's confidence. And she knows that."

In the same article, an unidentified White House aide also appeared to try to distance Sebelius from the website troubles, and was quoted as saying, "Kathleen has the title, but she doesn't have the responsibility or in many respects the kind of wide authority and access to the president that she really needs to make a difference."

Sebelius, who will testify to Congress next week, and McDonough attended the session with insurance company executives. They included the chief executives of WellPoint Inc, Humana Inc and Aetna Inc among others.

WellPoint raised its 2013 membership and profit forecasts in part to reflect coming market changes under the law, its chief executive, Joseph Swedish, said in a statement on Wednesday.

(Additional reporting by Amanda Becker, Richard Cowan, Roberta Rampton and Susan Heavey in Washington, Caroline Humer in New York; Writing by John Whitesides; Editing by Fred Barbash, Karey Van Hall, and Grant McCool)


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Former Ecuadorean judge testifies to bribery in Chevron case

Former Ecuadorean judge Alberto Guerra Bastida (L) leaves the federal court in New York October 22, 2013. REUTERS/Eric Thayer

1 of 3. Former Ecuadorean judge Alberto Guerra Bastida (L) leaves the federal court in New York October 22, 2013.

Credit: Reuters/Eric Thayer

By Bernard Vaughan

NEW YORK | Wed Oct 23, 2013 6:05pm EDT

NEW YORK (Reuters) - A former Ecuadorean judge testified on Wednesday that he ghost-wrote rulings for a judge who ordered Chevron Corp to pay $19 billion to villagers whose land had been polluted by oil exploration.

The former judge testified at a trial in New York in which Chevron accuses U.S. lawyer Steven Donziger of bribing the Ecuadorean judges to win the award for the villagers.

Donziger has denied bribing the officials.

On the witness stand on Wednesday, the former judge, Alberto Guerra, said he met in 2009 with Donziger and other representatives of the villagers at Honey & Honey, a restaurant in Quito.

Guerra said another lawyer representing the villagers had already agreed to pay him $1,000 a month to ghost-write court orders for the presiding judge, Nicolas Zambrano. Zambrano, who was also being paid, agreed to expedite the case and limit procedural avenues by which Chevron could delay it, Guerra said.

Donziger was fully aware of the arrangement, Guerra said.

"Mr. Donziger thanked me for the work that I was going to do," Guerra said of the restaurant meeting.

Randy Mastro, a lawyer for Chevron, asked Guerra if he understood he was violating Ecuadorean law by agreeing to ghost-write Zambrano's orders.

"It hurts me to say so, but yes," Guerra, wearing a gray suit, said calmly through an interpreter.

Guerra testified that Zambrano would typically give him court documents on Friday afternoons, often outside a Quito airport. Guerra would study them and prepare court orders over the weekend before delivering them to Zambrano on Sunday afternoons, he said.

Zambrano is also expected to testify in the trial.

Once Guerra started ghost-writing in the case, another lawyer for the villagers would periodically meet Guerra on a Quito street corner to deliver a blank envelope filled with $1,000, denominated in $20 and $50 bills, Guerra said.

The U.S. dollar is Ecuador's official currency.

Some payments were also made directly into his savings account, Guerra said.

Guerra is a key witness for Chevron, which is seeking to discredit the $19 billion award.

Chevron wants U.S. District Judge Lewis Kaplan, who is presiding over the trial without a jury, to prevent Donziger and villagers he represents from collecting the award in U.S. courts or from profiting from it in any way.

The award stemmed from environmental contamination between 1964 and 1992 at an oil field in northeastern Ecuador operated by Texaco, which Chevron bought in 2001. Chevron says Texaco cleaned up its share of waste before turning the field over to state-owned Petroecuador.

But in 2011, Zambrano awarded $18 billion to people from the Lago Agrio area, which was affected by the pollution. The court subsequently increased the award to $19 billion to cover fees.

Mastro asked Guerra to identify Donziger in the courtroom.

Guerra said Donziger was the person who had just smiled, before describing the dark suit Donziger was wearing. "He knows me. He has seen me. We've been together."

Donziger's lawyers are expected to cross-examine Guerra on Thursday.

They have questioned Guerra's credibility, saying Chevron is paying him for his testimony. In January, Chevron said it relocated Guerra's family to ensure his safety and paid him $38,000 for the costs of providing his evidence. Chevron also confirmed that it agreed to pay Guerra's family $10,000 per month for living expenses and $2,000 for housing.

Guerra, who had presided over the Ecuadorean case before Zambrano, also testified that he and Zambrano initially offered a similar proposal to Chevron.

"Judge Zambrano and I obviously believed that Chevron was in quite a better financial situation than the plaintiffs," Guerra told Mastro.

A lawyer for Chevron said he would relay the offer, which was rebuffed weeks later in a telephone call, Guerra said. The lawyer said that "under no circumstances would Chevron agree to any sort of agreement," Guerra said.

Zambrano, Guerra said, was "discouraged, dispirited," before soliciting Donziger's team.

The case is Chevron Corp v. Steven Donziger et al, U.S. District Court for the Southern District of New York, No. 11-0691.

(Reporting by Bernard Vaughan; Editing by Marguerita Choy and Steve Orlofsky)


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France's Hollande seen losing 2017 presidential election: poll

France's President Francois Hollande listens to a speech during a meeting called ''Reporters of Hopes, Solutions for France'' at Iena Palace in Paris October 18, 2013. REUTERS/Francois Mori/Pool

France's President Francois Hollande listens to a speech during a meeting called ''Reporters of Hopes, Solutions for France'' at Iena Palace in Paris October 18, 2013.

Credit: Reuters/Francois Mori/Pool

PARIS | Thu Oct 24, 2013 12:05am EDT

PARIS (Reuters) - Four fifths of French voters believe President Francois Hollande will not win the next presidential election in 2017, a poll showed on Thursday, a fresh blow to the leader of the euro zone's second-biggest economy.

Raging unemployment, anger with tax hikes and rows within his government and party have pushed the Socialist president's popularity to its lowest since he was elected in May last year.

In a further blow, 76 percent of those surveyed in the Harris Interactive poll for Le Figaro daily and LCP television said they did not see Hollande as someone who keeps his promises and 68 percent did not consider him competent.

In contrast, 54 percent of those surveyed on October 21-22 said they believed hardline Interior Minister Manuel Valls would beat a right-wing candidate in the 2017 presidential election. Only 16 percent said Hollande could achieve that.

In France, the outgoing president traditionally represents his party in the next election and in past decades most, with the exception of former conservative president Nicolas Sarkozy, won a second mandate.

Hollande saw his popularity sink lower after he was widely criticized on Sunday for offering to allow a deported immigrant teenager to return to France but without her family.

Valls has toughened his rhetoric against illegal migration and makeshift Roma camps as the far-right National Front party surged in popularity ahead of municipal and European elections next year.

(Reporting by Ingrid Melander; editing by Tom Pfeiffer)


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Indonesian designers defy stereotypes of Muslim fashion


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Insight: China party's secretive judicial system laid bare in torture case

A paramilitary policeman stands guard at Tiananmen Square near the Great Hall of the People prior to the pre-session of the National People's Congress (NPC) in Beijing March 4, 2013. REUTERS/Kim Kyung-Hoon

A paramilitary policeman stands guard at Tiananmen Square near the Great Hall of the People prior to the pre-session of the National People's Congress (NPC) in Beijing March 4, 2013.

Credit: Reuters/Kim Kyung-Hoon

By Sui-Lee Wee

BEIJING | Wed Oct 23, 2013 7:53pm EDT

BEIJING (Reuters) - As Yu Qiyi's interrogation entered its 39th day, officials from the Chinese Communist Party's anti-corruption watchdog debated how to get a confession out of the detained man, the chief engineer at a state-owned firm in eastern Wenzhou city.

One official noted he had forced Yu's head under water the night before. A day later, Yu died after being dunked repeatedly in a bucket of ice-cold water.

Six officials were convicted last month of torturing Yu to death. Testimony given in the case, seen by Reuters, illustrates the brutality of a secretive detention system for party members and the drive to get confessions as President Xi Jinping presses on with an aggressive anti-corruption campaign.

Lawyers say the case - highly unusual because Yu's interrogators were charged - also renews questions about the legality of the process given rampant abuses in the system.

The party introduced the detention system, called "shuanggui", in 1990 to weed out corrupt members as the temptation to take bribes sky-rocketed on the back of China's nascent economic boom.

Detentions can last indefinitely, with family members often kept in the dark about the fate of their loved ones.

"If there are more corruption investigations, there is greater use of 'shuanggui'," said Nicholas Bequelin of New York-based Human Rights Watch.

"Because of the political premium that is put on the anti-corruption campaign, I assume this will create the incentive for more abuses."

Prominent human rights lawyer Mo Shaoping called "shuanggui" unconstitutional.

"TERRIFIED OF WATER"

Yu, 42, was detained on March 1. It is not precisely clear why he was being investigated. His family's lawyers believe it was possibly related to a land deal.

The court on September 30 sentenced five officials from the party's Central Commission for Discipline Inspection in Wenzhou to between four and 14 years in jail. A sixth official, from the local prosecutor's office, was jailed for eight years.

It was a rare instance of legal punishment handed down over the abuse of a party official detained under "shuanggui", lawyers for Yu's family said. They said the case went to court because of a public outcry over Yu's death as well as the family's doggedness in seeking justice.

One of the convicted officials, Cheng Wenjie, said senior officials from the Central Commission for Discipline Inspection in Wenzhou gave the go-ahead for the water punishment.

"Yu Qiyi was terrified of water," Cheng told investigators in testimony that detailed the debate on how to get Yu to confess.

"If we continue dunking him in water, we might be effective, so the leaders said continue," according to a transcript of his remarks given to the court in the nearby city of Quzhou, where the trial was held.

His testimony and those of others were part of the defense statement given by Chi Susheng, a lawyer for Li Xiang, another of the six accused. Chi posted the testimonies online, where they have gotten little attention.

Wu Qian, Yu's ex-wife, told Reuters she believed Yu was innocent of any graft accusations. Yu, she said, had "thought he was just assisting with the investigation into other people".

She said Yu told her that commission officials had notified him in January 2012 he was being investigated. Wu added she had no contact with him while he was under detention.

The Wenzhou commission did not respond to a request for comment.

BO XILAI HELD FOR 17 MONTHS

Graft oils the wheels of government at almost every level in China, which ranked 80th out of 176 countries and territories on Transparency International's corruption perceptions index, where a higher ranking means a cleaner public sector.

Nearly all senior government personnel as well as top executives at state-run firms are members of the Communist Party.

Like his predecessors, Xi Jinping has warned that corruption threatens the party's very existence.

Spearheading his crackdown on graft is Wang Qishan, head of the Central Commission for Discipline Inspection.

Wang warned party investigators on Wednesday that their jobs were on the line if they failed to root out corruption, telling them to use "shock and awe" on their targets, in comments published on the commission's website. He gave no details on tactics to get results.

Xi himself has vowed to catch high-flying "tigers" as well as low-ranked "flies".

"Shuanggui" is used for both.

Ousted politician Bo Xilai, sentenced to life in jail last month for corruption and abuse of power, was held for 17 months. In court, he recanted an earlier confession to party investigators saying it was made due to psychological pressure.

Two other party officials died while in detention between April and June this year, according to a lawyer involved in those cases who declined to be identified for fear of retribution.

Commission officials in Beijing declined to comment.

Party members suspected of corruption first go into "shuanggui" as opposed to police detention.

Nearly all are forced to confess, said a lawyer who has represented eight clients held under the system.

"This tool has become a knife hanging over the head of every party member," said the lawyer, who declined to be identified as he has been warned by authorities not to speak to foreign media.

"It makes the people below obedient."

Once a confession had been extracted, most cases are handed to the judiciary, added Mo Shaoping, the human rights lawyer.

"WE ARE ALL ANTS"

The brutality against Yu drew public outrage. Photos of his bruised corpse were put on the Internet by his family before the six officials were indicted.

One Chinese netizen posted an online comment calling the abuse of Yu "fascist". Another said: "In the face of strong power, we are all ants, there's no exception even for people within the system."

Even official news agency Xinhua weighed in, saying in an online posting that "if you do not lock power into the system's cage, it will be difficult for anyone to feel a sense of security".

This week, China's prosecutor-general, Cao Jianming, said some investigators relied too much on confessions rather than evidence, although he did not refer to the party's detention system.

The cause of Yu's death was "inhalation of liquids leading to pulmonary dysfunction", according to the defense statement from Chi, the lawyer representing one of the accused.

"When I arrived at the scene, I was very shocked because he had changed dramatically, he was emaciated," said Yu's ex-wife, Wu. "The doctor told me there was no point in resuscitating him, there was no hope."

One official responsible for guarding Yu testified that he beat the detainee on a number of occasions.

"Because he wasn't honest, (I) beat him twice," said Yang Huan. "Each time, (I) slapped him about two to three times. After that, (I) dragged him once to the toilet and slapped him about four to five times."

On March 13, when Yu nodded off to sleep, another guard kicked him, according to testimony from Zhang Yuexiang, a worker assigned to watch over Yu.

ONE DETAINEE RECOUNTS SUICIDE ATTEMPT

Lawyers and scholars familiar with "shuanggui" said they were not aware of any data on the number of party members who had been detained under the system. But they say it's a frequent practice.

"There's definitely a correlation between shuanggui and Xi Jinping's anti-graft campaign because the disciplinary commission will first use shuanggui and then pursue judicial proceedings. It's a useful tool for the government," said human rights lawyer Si Weijiang, who is advising Yu's family.

"There's no time constraints, there are no legal rules to follow, the person in shuanggui has no right to a lawyer."

The former head of a police station in eastern Jiangsu province who was held for 42 days in 2004 told Reuters he tried to commit suicide because of the abuse he suffered.

"They hung a 20-kg sandbag around my neck to try to force me to admit I had taken bribes," he said. "When you experience those kinds of things, you want to commit suicide but they made me wear a helmet so that I couldn't smash my head against the wall in an attempt to die."

The former officer, who declined to be identified for fear of retribution, said he eventually confessed. He said the case was the result of a personal vendetta from a former colleague.

The officer, now 48, said he was sentenced to a year in jail for bribery.

The Central Commission for Discipline Inspection in Jiangsu did not respond to a faxed query from Reuters.

But an interrogator in Chongqing - the southwestern city run by Bo Xilai before his downfall - defended the detention system, saying abuses were not the norm.

"It's just colleagues having a discussion, we don't have any right to come into physical contact with them," said the interrogator, surnamed Wang, who declined to give his full name. "We have basic procedures and measures that we must follow."

In the early hours of April 9, the six officials in Wenzhou panicked when they heard Yu had died in hospital, according to testimony by Cheng Wenjie, one of the convicted officials.

Cheng said Liu Xianfeng, a senior official within the Wenzhou commission, told him and two others to accept responsibility for the case "because the leaders said the fewer people who are involved, the better".

One official who testified to police, Chen Zheyi, said that Liu had told him to delete surveillance footage of Yu's questioning. Liu could not be reached for comment.

When asked by police why he gave instructions to do so, Liu said in testimony that he did not want to involve too many people.

"Whoever I can protect, I should protect," Liu said. "Besides, it's not good for the media to get wind of this."

(Additional reporting by Beijing Newsroom. Editing by Dean Yates)


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