tuesday, 12 july of 2016

How Uber secretly investigated its legal foes — and got caught

When a young labor lawyer named Andrew Schmidt first filed suit against Uber in December of last year, he couldn’t have predicted it would make him a target. Schmidt’s suit was a legal long shot, alleging that Uber CEO Travis Kalanick coordinated surge pricing in violation of anti-trust laws — but those legal arguments would soon be overshadowed by something much stranger.

A few weeks after the case was filed, Schmidt found out he was being investigated. According to a court declaration made by Schmidt and his colleagues, someone had called one of Schmidt’s lawyer friends in Colorado to ask some strange questions, claiming it was for a project "profiling up-and-coming labor lawyers in the US." What was the nature of his relationship with the plaintiff? Who was the driving force behind the lawsuit? Calls were also allegedly made to acquaintances of Schmidt’s client, Spencer Meyer, with a similar proposal to profile "up-and-coming researchers in environmental conservation."

Schmidt reached out to Kalanick’s lawyers, but they said Uber wasn’t involved, writing back, "Whoever is behind these calls, it is not us."

A month later, those same lawyers called back to admit that wasn’t strictly true. Schmidt and his client were being investigated by a secretive research firm, staffed by veterans from the CIA and the National Security Council, on behalf of Uber’s top executives. As soon as the lawsuit was filed, those executives took an interest in Schmidt and his client, sending out operatives to dig up what they could find on Uber’s new antagonists.

That investigation has turned into a legal disaster for Uber, and the presiding judge has already ruled the evidence constitutes "a reasonable basis to suspect the perpetration of fraud." The result is a rare window into how one of the most powerful and litigious companies in the world responds to a major class action lawsuit. As Uber continues to attract new lawsuits and accusations, the investigation into Schmidt and his colleagues shows just how far the company will go to defend its position, both inside and outside the courtroom.

According to internal Uber emails, the investigation began with a note from Uber’s general counsel, Sallie Yoo. The day that Schmidt filed the complaint against Kalanick, Yoo sent an email to Uber’s chief security officer, saying, "Could we find out a little more about this plaintiff?" The request was forwarded to the company’s head of Global Threat Intelligence, Mathew Henley.

By the end of the week, Henley was on the phone with a corporate research firm called Ergo, also known as Global Precision Research LLC, asking for help with "a sensitive, very under-the-radar investigation." After a few emails, Henley worked out the terms of the deal with an Ergo executive named Todd Egeland. It would be a "level two" investigation, the middle of the three levels of work offered by Ergo. It would be drawn from seven source interviews conducted over the course of 10 days, for which Uber would pay $19,500. As with any Ergo investigation, the confidentiality of the client was paramount, and sources were never meant to know who was paying for the research. "We do quite a bit of this work for law firms," Egeland reassured him. (Ergo did not respond to requests for comment.)

There was one other wrinkle, expanding the scope beyond Schmidt’s client to Schmidt himself. "I suggest that you may also wish for some details on the plaintiff’s relationship with the lawyer," Egeland wrote to Henley in one email. "They outwardly appear to be at least college, if not life-long, friends."

Henley approved the deal, writing back, "All looks good guys, thanks."

From there, the facts of the investigation become less clear. According to Schmidt and his team, Ergo contacted 28 different friends or co-workers of the plaintiff, each time claiming to be looking for information on "up-and-coming researchers in environmental conservation" or something similarly vague. The plaintiffs say those claims were false, and could be grounds for fraud.

Uber was treading on dangerous ground by even commissioning the investigation, some experts say. "This is a very unusual situation and one that raises real risks," says Michael Volkov of the Volkov Law Group, who has written extensively on third-party due diligence. "Going around and conducting interviews of people associated with the case, who may become witnesses, is really unseemly."

It’s not uncommon for firms to do basic background research on a plaintiff or opposing counsel. Facebook engaged in a similar investigation with a firm called Kroll a 2011 case contesting Zuckerberg's ownership of the company, although no impropriety by the investigators was ever alleged. But that research is typically conducted through online searches and public records requests, and anything involving direct contact with possible parties to the case is seen as far more delicate. "Commissioning the investigation without meaningful guidance on how it is conducted shows either naivete or that they just did not care about complying with appropriate restrictions on such investigations," Volkov says.

The judge hearing Uber’s case appears to have agreed. On June 7th, Judge Rakoff ruled that Schmidt and his colleagues had shown enough evidence to provide a reasonable perception of fraud, giving plaintiffs the right to examine emails and other documents exchanged between Uber and Ergo. According to the ruling, Ergo’s investigation was "raising a serious risk of perverting the process of justice before this court." With that ruling, what began as an antitrust case has become a parallel case about exactly how far Ergo went, and how much Uber knew about it.

The implications go far beyond a single case. Uber is currently litigating 70 different federal lawsuits, which range from accusations of wage theft to fundamental questions of worker classification. Any one of those cases could be a tempting target for third-party research firms like Ergo. According to a sworn deposition from an Ergo employee, this was the fourth time Uber hired the company for research, although it’s unclear whether the other cases involved an active trial. Given the volume of cases against Uber and the routine way in which the investigation was assigned, it’s plausible the company was contracting with other research firms.

It’s not the first time Uber has shown an appetite for researching the company’s critics. In a private dinner in 2014, Uber executive Emil Michael outlined a plan to spend a million dollars collecting opposition research on journalists who cover Uber unfavorably, suggesting the company could investigate "your personal lives, your families." Uber’s CEO later condemned the comments, and there’s no indication such a program was ever put into place.

Founded in 2006, Ergo provides data analysis and business consulting for a range of private clients, according to its website, but its main goal is the delivery of "ground truth and actionable intelligence obtainable only from frontline sources." It boasts of working on 800 projects in 120 countries, from searching for fraud in Iraqi shipping deals to advising on Ugandan oil contracts. It is headquartered in New York City, but has offices in Phoenix, Arizona and Yangon, Myanmar.

The company's founder, Randolph Post "R.P." Eddy, has a long history of work in both counterterrorism and diplomacy. He served as director of counterterrorism at the White House National Security Council during the Clinton administration, chief of staff to US Ambassador to the United Nations Richard Holbrooke, and senior policy officer for UN Secretary-General Kofi Annan. Eddy helped found the New York Police Department’s counterterrorism center, serves on numerous boards and think tanks, and has appeared frequently on national television in his capacity as an expert on terrorism. Egeland, the firm’s managing director, testified that prior to working at Ergo, he served at the Central Intelligence Agency for 28 years.

Uber communicated with Ergo largely over encrypted channels. Henley explained in one email that this was necessary to "avoid potential discovery issues." (A subsequent Uber filing characterizes the reasoning differently, saying encryption was necessary "to protect against data breaches of Ergo’s mail servers.") Initial emails were encrypted with PGP — specifically the Enigmail extension — but after a number of emails failed to decrypt, Henley suggested moving the conversation to the encrypted chat app Wickr, saying, "Nothing’s worse than the 30 years of attempted PGP mail client integrations."

Wickr automatically deletes messages after a preset period of time (typically 72 hours), and Uber executives have testified that it is a common tool for internal communications. After Henley’s suggestion, PGP emails dropped off entirely, except to transmit some preferred legal language three days later and submitting the final report 12 days after that.

Presented with a court-mandated discovery order, Uber provided decrypted versions of the PGP emails, but the Wickr conversations have proven to be more of a challenge. Although email records show Henley exchanging Wickr screen names with Ergo executives, Henley denied directly communicating over the service in a sworn deposition. Given Wickr’s automatic deletion system, that claim is impossible to disprove.

Uber says it initially reached out to Ergo to assess whether Meyer, the plaintiff, posed a direct threat to Kalanick. Joe Sullivan, Uber’s chief of security, testified that because Spencer Meyer’s antitrust suit specifically named Kalanick as the defendant, as opposed to the $62.5 billion company he runs, it was prudent to look into Meyer’s background to see if he "had it in for our CEO."

"I'm always on the lookout when situations arise that could be a cause for concern," Sullivan said. "And I'm always careful to make sure that we do our diligence in those situations."

Sullivan also noted it was "an unusual situation" for Kalanick to be named specifically in the suit. However, Uber passengers are subject to user agreements that require them to resolve disputes through arbitration, and suing Kalanick may have been a way around that clause. Tellingly, Uber filed court documents July 8th that would compel Meyer to settle his case through arbitration.

Despite Sullivan’s concerns, internal Ergo emails show more of an interest in reputational damage than physical threat. In one of the first available emails sent while compiling the report, a supervisor asks, "Do we have enough negative things said about Meyer [the plaintiff] to write a text box?" When those facts proved hard to come by, the primary investigator, Miguel Santos-Neves, eventually replied, "One did say that he was enamored with ideas and may be unfamiliar with the realities and demands of the real world." The supervisor replied, "Perfect."

The final report notes that Meyer "may be particularly sensitive to any actions that tarnish his professional reputation." Neither the report nor any of the available communications between Ergo and Uber make any reference to Meyer as a possible security threat to Kalanick.

On March 22nd, as Schmidt and his colleagues were demanding answers on the scope of the investigation, Ergo arranged a private meeting with Uber’s global threat team. In the meeting, Ergo acknowledged that the investigation had gone beyond the appropriate scope, blaming the overreach on "an employee who had gone rogue" — apparently a reference to Santos-Neves.

However, Santos-Neves testified that his supervisors never reprimanded him, nor gave any indication that his tactic of misrepresenting himself in interviews with Meyer’s acquaintances violated Ergo’s protocols. In fact, he implied that it was necessary in order to shield Uber’s involvement. "The confidentiality of our clients is of utmost importance," Santos-Neves testified. "One of the ways that we maintain that confidentiality is by, as I said earlier, crafting questions that can, you know, maintain that confidentiality." He added, "We can be sort of vague about our intentions."

In a filing last night, Uber pushed back against the allegations of fraud, arguing its contract with Ergo had specified that the investigation be both lawful and professional, and neither Kalanick nor Uber had any idea an investigator might stray beyond that. "Uber took reasonable steps to ensure that Ergo complied with the law," the filing reads. "It is undisputed that Uber and Mr. Kalanick were unaware that Ergo would use misrepresentations during its investigation."

Reached by The Verge, Uber declined to comment, as did the plaintiff’s legal team. Reached briefly by phone on Thursday, Santos-Neves said, "Please don’t call me." Uber and the plaintiffs are scheduled to present oral arguments in federal court in New York on July 14th.

(Published by The Verge - July 10, 2016)

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