Overhaul of state government payroll system at risk of collapse

SACRAMENTO — One of the state's biggest technology endeavors, a $371-million overhaul of the government payroll system, is beset with problems and "in danger of collapsing," according to the state controller's office.

The company hired for the project is in over its head and may be unable to deliver on its promise to update a payroll system so old that even simple salary adjustments can tie it in knots, the controller's chief administrative officer said in a letter.

The state has spent at least $254 million so far on contractors, staff salaries, software and more for the system upgrade, which is five years overdue and has nearly tripled in cost since lawmakers authorized it in 2005.

"The project … is foundering and is in danger of collapsing," administrator Jim Lombard wrote to the contractor, SAP Public Services, in October. Lombard said the new system is not capable of processing "any portion of the state payroll population, let alone the full population of approximately 240,000 employees."

An SAP spokesman, Andy Kendzie, said the company is meeting its contractual obligations.

"Considering the project's complexity, and the many requirements involved in payroll processing, there have been some challenges," Kendzie said in a statement. "Despite these, SAP remains committed to the overall success of the project."

Technology quagmires have become a hallmark of California state government, with delays and cost overruns common.

A new computer system for the public pension fund was finished in September 2011 at twice the original budget. An effort to upgrade accounting databases and allow agencies to coordinate purchasing has fallen years behind schedule, and the estimated cost has increased by hundreds of millions of dollars. Back in 1994, a failed DMV system was canned after $50 million had been spent.

Lombard wrote in his letter that the new payroll system was tested on 1,300 employees this year and failed. Some paychecks were issued to the wrong employees or for the wrong amounts.

Testing began in June, Lombard wrote, and since then "every pay cycle has experienced problems" despite SAP's repeated assurances that improvements were being made. A second trial run, set for September, has been delayed until at least March.

SAP failed to meet nine of its 44 deadlines in the first eight months of this year, says the 37-page letter. Lombard demanded that SAP fix all of the problems identified by the state, including replacing inexperienced project managers and staff.

The controller's spokesman, Jacob Roper, said officials are reviewing a plan that SAP submitted last month to address the state's concerns.

The company has already been paid $50 million. Roper said an additional $6.9 million hasn't been turned over because the project has missed various milestones, and the state plans to withhold remaining funds until problems are fixed.

The goal of the effort, called the 21st Century Project, is to integrate and replace six different human resources systems, some installed in the 1970s and now at risk of failure.

The new system will have to handle a $15-billion payroll across 160 state departments, agencies, boards and commissions, calculating data on 36 medical plans, 12 dental plans and dozens of paycheck deductions.

When finished, it is supposed to allow managers and employees to access and update human resources data much more easily, according to outlines of the project on the controller's website.

The first contractor on the project, BearingPoint, was fired in January 2009 amid mutual finger-pointing and lawsuits, and the project ground to a halt. The company had already been paid nearly $26 million, although the state was able to collect $2.8 million in insurance payments and keep any completed work.

SAP replaced BearingPoint in February 2010.

chris.megerian@latimes.com

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“It’s a Wonderful Life” is top Christmas film with critics

LOS ANGELES (Reuters) – When it comes to Christmas films, “It’s a Wonderful Life” can still melt critics’ hearts nearly 70 years after it was released, according to a survey of the best-reviewed Christmas films.

The survey, to be released on Friday by review aggregator Rotten Tomatoes, found that the 1946 redemption story starring Jimmy Stewart edged out the 1942 Bing Crosby and Fred Astaire musical “Holiday Inn” and Tim Burton‘s 1993 stop-motion fantasy “The Nightmare Before Christmas.”

World War Two drama “Stalag 17,” released in 1953, and 1947′s “Miracle on 34th Street” round out the top five.

“It’s a Wonderful Life” vaulted to the top spot from No. 5 in 2009, when the list was last compiled, bumping “The Nightmare Before Christmas” from its best-reviewed status.

Films that use the holiday as a backdrop for the plot such as 1988′s “Die Hard,” which was No. 6 on the list, and 1983′s “Trading Places” at No. 9, were also eligible, the website said.

Rotten Tomatoes, which analyzes film reviews and assigns a score based on total critical reception, applied that same formula to Christmas films for the list, Matt Atchity, the website’s editor in chief, told Reuters.

“You look at the list and it’s all the classics … the cream floats to the top,” Atchity said, adding that the rankings were weighted to reflect the amount of reviews a film received, which could artificially boost or decline a score.

Films from the 1960s and 1970s were notably absent from the list. Atchity said studios were more focused at that time on work by big-name directors than on seasonal films.

Here are the 25 best-reviewed Christmas films of all time, according to website Rotten Tomatoes:

* “It’s a Wonderful Life” (1946)

* “Holiday Inn” (1942)

* “The Nightmare Before Christmas” (1993)

* “Stalag 17″ (1953)

* “Miracle on 34th Street” (1947)

* “Die Hard” (1988)

* “Arthur Christmas” (2011)

* “A Christmas Story” (1983)

* “Trading Places” (1983)

* “Rare Exports: A Christmas Tale” (2010)

* “Lethal Weapon” (1987)

* “A Midnight Clear” (1992)

* “A Christmas Tale” (2008)

* “While You Were Sleeping” (1995)

* “Scrooge (A Christmas Carol)” (1951)

* “Elf” (2003)

* “Kiss Kiss, Bang Bang” (2005)

* “Gremlins” (1984)

* “The Santa Clause” (1994)

* “The Bishop’s Wife” (1947)

* “Bad Santa” (2003)

* “8 Women” (2002)

* “Batman Returns” (1992)

* “White Christmas” (1954)

* “The Ref” (1994)

The full list can been seen at http://www.rottentomatoes.com/guides/best_christmas_movies_2012/?hub=10

(Reporting by Eric Kelsey, editing by Jill Serjeant and Stacey Joyce)

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Medicare’s Chief Actuary, Richard Foster, Retiring

Carol T. Powers for The New York Times

Richard S. Foster testifying before the House Ways and Means Committee in 2004

WASHINGTON — Richard S. Foster, who as chief actuary of the Medicare program for the last 18 years nettled presidents of both parties with his projections of rapid growth in federal health care spending, will retire next month, the Obama administration said Friday.

Mr. Foster, 63, a career civil servant known for his fierce independence, has been an influential voice on Medicare, Medicaid and the new health care law.

With 100 million people on Medicare or Medicaid and an additional 20 million expected to get federal subsidies for private insurance under President Obama’s health care law, the need for accurate estimates of health spending has never been greater, lawmakers say.

Mr. Foster said that Medicare savings in the 2010 health care law, based on cutbacks in payments to hospitals and other health care providers, were probably unsustainable and could jeopardize access to care for beneficiaries, a judgment that displeased the Obama administration.

In 2003, Mr. Foster found himself in conflict with the Bush administration when he raised questions about the cost of a Republican bill adding a prescription drug benefit to Medicare. Federal investigators later found that a top Medicare official had threatened to fire Mr. Foster if he provided certain cost estimates to Congress.

Marilyn B. Tavenner, acting administrator of the federal Centers for Medicare and Medicaid Services, praised Mr. Foster for “his adherence to the highest levels of professional independence and ethical conduct.” She said he “will be sorely missed by policy makers and officials throughout the administration and Congress.”

Ms. Tavenner said “we will soon begin a national recruitment effort” to find a successor to Mr. Foster, who began working for the federal government 40 years ago.

Proposals to rein in Medicare spending have been at the center of budget negotiations between President Obama and Speaker John A. Boehner. Both sides have relied on data from Mr. Foster’s office.

Congress bolstered the actuary’s independence in a 1997 law stipulating that the holder of the job can be removed from office “only for cause.”

In a report accompanying the law, Congress said that “the office of the actuary has a unique role,” serving both the administration and Congress, and often must work with lawmakers developing legislation.

With help from a staff of nearly 100, the chief actuary issues detailed annual reports on national health spending and the financial outlook for Medicare. In addition, the actuary’s office collects data used to calculate Medicare payment rates for doctors, hospitals and many other health care providers.

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Gun Shop Owners Report Spike in Sales as Enthusiasts Fear Possible New Laws

Larry Deklinski/The News-Item, via Associated Press

Linda Kahler with customers at Kahler’s Gun Shop in Helfenstein, Pa., where the business has been crowded the past few days.

Rainier Arms, a gun dealer in Auburn, Wash., receives great Yelp reviews for its responsiveness. But a call to the dealer on Friday led to a full voice mail box, and an e-mail to its sales team drew this automatic response: “Thank you for contacting Rainier Arms for your AR-15 needs.  Due to an overwhelming response to the latest political climate, we are experiencing longer-than-normal response times.”

At Bud’s Gun Shop in Maryland, a message on the Web site said that customer service was “completely overwhelmed” and it discouraged customers from calling or e-mailing.

And on GunBroker.com, an Oracle .223 that normally retails for around $650 had been bid up to $1,175 with three days left in the auction.

With gun-control legislation getting more serious discussion than it has in years, gun sales are spiking as enthusiasts stock up in advance of possible restrictions.

Gun sales have been increasing over the past five years, with marked increases around the 2008 and 2012 elections, and after mass shootings like the one in Aurora, Colo., and now in Newtown, Conn.

“The largest factor by far is fears over a potential change in gun laws — that’s what’s driving most guns enthusiasts or even first-time buyers to go buy a gun,” said Nima Samadi, senior guns and ammunition analyst for the research firm IBISWorld.

There is increasing demands for guns in the United States. Last year, the Federal Bureau of Investigation conducted 16.45 million background checks for firearm sales through the National Instant Criminal Background Check System, a 14 percent jump from the previous year. In the first 11 months of this year, the bureau conducted 16.8 million background checks, a record since the system’s founding in 1998.

Since the shootings at Sandy Hook Elementary School in Newtown, though, a few companies associated with gun sales have backed away. Cerberus Capital Management put the company that makes the Bushmaster, a gun used in the shootings, up for sale on Tuesday, saying, “The Sandy Hook tragedy was a watershed event that has raised the national debate on gun control to an unprecedented level.”

Dick’s Sporting Goods temporarily ceased selling all guns in its location closest to Newtown, and has also put a hold on sales of so-called modern sporting rifles, which include semiautomatic guns, nationwide.

And Deseret Digital Media, which owns KSL.com, a Web site that has been criticized by Mayor Michael R. Bloomberg for allowing unregulated gun sales, said it was suspending classified advertisements for guns.

Elsewhere, though, consumers are hurrying to buy guns, leading to some models being out of stock, warnings of shipping and customer-service delays, and significant premiums on assault rifles.

“We are seeing a total madhouse of buying everything in sight,” said Bob Irwin, owner of the Gun Store, a Las Vegas shooting range and retailer. Thursday, he said, was the largest sales day in the history of the store, which has been open for 30 years. “We have not only a run on the guns, but a run on ammunition.”

Mr. Irwin has begun limiting how much of some types of ammunition customers can buy, and he has canceled employees’ days off to handle the demand.

Walmart, the largest retailer of guns and ammunition in the United States, indicated that several semiautomatic guns were out of stock at locations across the country. Kory Lundberg, a spokesman, said the company was not sold out of guns altogether, but had low inventory in some situations. Walmart carries guns in about half its stores, and about one-third carry so-called modern sporting rifles, the category including the Bushmaster and other AR-15 weapons.

Other retailers around the country were selling out of guns and accessories. On Friday on ImpactGuns.com, the Bushmaster .223 was out of stock. Davidson’s, a supplier to gun retailers, placed a notice on its Web site that said it was seeing “unprecedented demand,” and at MidwayUSA.com, more than 100 parts for AR-15 guns were out of stock and on back order.

On AR15.com, a gun-enthusiast Web site, a user posted that a barrel for a gun disappeared from an online shopping cart overnight, and is now on back order. Another user, named warplg8654, responded, “Dealers can’t keep anything in stock for what I think are obvious reasons given the current political climate.”

When a user called JazzFan asked whether paying a $100 premium for a Stag Model 3 was a good deal, another user said that seemed “reasonable with all of the panic buying.”

Gavin Gear, the founder of the enthusiast site Northwest Gun, said gun owners were feeling “apprehension.”

“People are trying to think ahead, and if they want to own a particular firearm and they think it’s going to be outlawed or restricted, they’re more likely to buy now,” he said.

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LAPD investigation of killing hobbled by DEA

The U.S. Drug Enforcement Administration has refused for more than two years to allow its agents to cooperate with a Los Angeles Police Department investigation into the death of a drug suspect shortly after he was arrested in a DEA operation, according to LAPD records.

The LAPD's homicide investigation has effectively stalled, and officials said in documents reviewed by The Times that without assistance from the DEA they cannot determine how the man's fatal injuries were inflicted.

An autopsy found that the suspect's ribs had been fractured in 21 places and coroner's officials concluded that the injuries were caused by "blunt force." The fractures led to internal bleeding, which ultimately killed the man, the coroner found.

The LAPD believes DEA agents may have caused the injuries when they placed the suspect on his stomach while handcuffing him, according to the documents. But without being able to interview the DEA agents who made the arrest, it's impossible for the detectives to determine whether the excessive force was used.

Dawn Dearden, a spokeswoman for the DEA, said the U.S. Justice Department's own Office of the Inspector General is conducting an investigation into the death to determine whether DEA agents broke federal civil rights laws by using excessive force when arresting the man. Dearden said the DEA has provided the LAPD with some information and documentation about the incident.

"However, it is not uncommon for an agent under multiple ongoing investigations to decline specific law enforcement interviews until an inspector general investigation is completed," she said.

LAPD officials said they need to conduct their own homicide investigation. Chief Charlie Beck outlined the department's struggles with the case in a report recently submitted to the L.A. Police Commission. Beck reports to the civilian panel on all serious use-of-force cases and in-custody deaths.

Beck wrote that his detectives had made "numerous requests" to the DEA for interviews with the involved agents but have repeatedly "been met with negative results."

The incident began on a July night in 2010 in a parking lot a few blocks from Hollywood Boulevard. For months, DEA special agents had been working the area to arrest drug dealers and gang members, according to the report. On this night, an informant working with the DEA had arranged to meet two suspected dealers to purchase 10 ounces of crystal methamphetamine, the report said.

The informant, wired with a hidden microphone, approached the suspects' car and received the drugs from Alberto Arriaga, who remained in the passenger seat throughout the exchange. Drug agents moved in and are believed to have pulled Arriaga from the car, laid him face down on the pavement and handcuffed him, according to the LAPD report.

Eventually, officers from the LAPD were called in to take Arriaga and the other suspect to a nearby station to be booked, the report said. A station supervisor asked the men if they had any medical issues. Arriaga complained of leg pain from a previous injury but mentioned nothing else, the report found. The men were then placed in a holding cell together.

Sometime later that night, after the booking process had been completed, detention officers tried to move Arriaga, 45, to another jail facility. He told the jailers he was having abdominal pain "and had been beaten up by the DEA agents who arrested him," the report said. Arriaga was taken by ambulance to Hollywood Presbyterian Hospital. There, according to coroner's records, he waited 16 hours without receiving medical attention despite his worsening condition and then died.

The coroner's autopsy revealed that Arriaga's fractured ribs had caused internal bleeding in his chest that led to respiratory failure. Because the ribs had been broken by "blunt force injuries" that came from the back, the coroner classified the death as a homicide.

The exam also found that Arriaga had cirrhosis of the liver, a condition that can impair the blood's ability to clot and so could have exacerbated the internal bleeding.

As it does with all in-custody deaths and cases involving serious force by officers, the LAPD deployed a team of specialized investigators to look into Arriaga's death. Such investigations typically focus on LAPD officers and determine if they violated any department rules or committed any crimes.

However, the Arriaga case was complicated. Pursuing the theory that Arriaga's ribs were broken while he was being taken into custody, the investigators found that no LAPD officers had been involved in the arrest or even had been present to witness it.

An LAPD detective who had been briefed on the arrest by a DEA agent told investigators he had learned that Arriaga "was not cooperative in coming out of the vehicle, was subsequently pulled out of the vehicle and then placed on the ground," according to the LAPD report.

The report concluded that Arriaga's wounds were not inflicted by LAPD officers when he was custody — a finding corroborated by the Police Commission. The report did not address whether he could have been beaten by a fellow inmate but noted that the department is working to have better video surveillance of the lockup facilities.

The investigators asked the DEA repeatedly for permission to interview the agents involved in the arrest, but were rebuffed, according to the report.

At first DEA officials told the LAPD that the agents needed some time to find attorneys who would accompany them.

Then, once legal counsel was arranged, the DEA said the interviews would have to wait until after Arriaga's autopsy results were completed, which occurred a short time later. Still, the agency did not make the agents available.

Frustrated by the DEA's inaction, LAPD investigators went for assistance to local prosecutors in the district attorney's office, who concluded they did not have the authority to compel federal agents to cooperate with a local police department's investigation.

Several months later, the LAPD turned to U.S. Atty. Andre Birotte for help getting the agents to talk. According to Beck's report, agents from Birotte's Los Angeles office agreed to conduct the interviews with the DEA agents. Those interviews were put on hold, however, and have never occurred.

joel.rubin@latimes.com

Times staff writer Frank Shyong contributed to this report.

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‘Homeland’ star Claire Danes gives birth to first child

LOS ANGELES (Reuters) – Emmy-winning actress Claire Danes has given birth to her first child, a boy, the publicist for the “Homeland” star said on Wednesday.

Cyrus Michael Christopher Dancy was born on Monday to Danes, 33, and her husband, British actor Hugh Dancy.

Danes’ performance as CIA operative Carrie Matheson on Showtime’s “Homeland” series scored her an Emmy win in September, while the psychological thriller won the TV industry’s highest honor of best drama series.

Danes is nominated for her second Golden Globe award in the role at the Hollywood awards show in January. She also has won multiple awards for her past work on 2010 TV film “Temple Grandin,” and as a 15-year-old on the 1990s coming-of-age television drama “My So-Called Life.”

(Reporting by Eric Kelsey, editing by Jill Serjeant and Lisa Shumaker)

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Stigma Fading, Marijuana Common in California

Jim Wilson/The New York Times

At a San Francisco concert in 2010, marijuana use was general while signatures were collected for a measure to decriminalize it.

LOS ANGELES — Let Colorado and Washington be the marijuana trailblazers. Let them struggle with the messy details of what it means to actually legalize the drug. Marijuana is, as a practical matter, already legal in much of California.

No matter that its recreational use remains technically against the law. Marijuana has, in many parts of this state, become the equivalent of a beer in a paper bag on the streets of Greenwich Village. It is losing whatever stigma it ever had and still has in many parts of the country, including New York City, where the kind of open marijuana use that is common here would attract the attention of any passing law officer.

“It’s shocking, from my perspective, the number of people that we all know who are recreational marijuana users,” said Gavin Newsom, the lieutenant governor. “These are incredibly upstanding citizens: Leaders in our community, and exceptional people. Increasingly, people are willing to share how they use it and not be ashamed of it.”

Marijuana can be smelled in suburban backyards in neighborhoods from Hollywood to Topanga Canyon as dusk falls — what in other places is known as the cocktail hour — often wafting in from three sides. In some homes in Beverly Hills and San Francisco, it is offered at the start of a dinner party with the customary ease of a host offering a chilled Bombay Sapphire martini.

Lighting up a cigarette (the tobacco kind) can get you booted from many venues in this rigorously antitobacco state. But no one seemed to mind as marijuana smoke filled the air at an outdoor concert at the Hollywood Bowl in September or even in the much more intimate, enclosed atmosphere of the Troubadour in West Hollywood during a Mountain Goats concert last week.

Arnold Schwarzenegger, the former Republican governor, ticked off the acceptance of open marijuana smoking in a list of reasons he thought Venice was such a wonderful place for his morning bicycle rides. With so many people smoking in so many places, he said in an interview this year, there was no reason to light up one’s own joint.

“You just inhale, and you live off everyone else,” said Mr. Schwarzenegger, who as governor signed a law decriminalizing possession of small amounts of marijuana.

Some Californians react disdainfully to anyone from out of state who still harbors illicit associations with the drug. Bill Maher, the television host, was speaking about the prevalence of marijuana smoking at dinner parties hosted by Sue Mengers, a retired Hollywood agent famous for her high-powered gatherings of actors and journalists, in an interview after her death last year. “I used to bring her pot,” he said. “And I wasn’t the only one.”

When a reporter sought to ascertain whether this was an on-the-record conversation, Mr. Maher responded tartly: “Where do you think you are? This is California in the year 2011.”

John Burton, the state Democratic chairman, said he recalled an era when the drug was stigmatized under tough antidrug laws. He called the changes in thinking toward marijuana one of the two most striking shifts in public attitude he had seen in 40 years here (the other was gay rights).

“I can remember when your second conviction of having a single marijuana cigarette would get you two to 20 in San Quentin,” he said.

In a Field Poll of California voters conducted in October 2010, 47 percent of respondents said they had smoked marijuana at least once, and 50 percent said it should be legalized. The poll was taken shortly before Californians voted down, by a narrow margin, an initiative to decriminalize marijuana.

“In a Republican year, the legalization came within two points,” said Chris Lehane, a Democratic consultant who worked on the campaign in favor of the initiative. He said that was evidence of the “fact that the public has evolved on the issue and is ahead of the pols.”

A study by the California Office of Traffic Safety last month found that motorists were more likely to be driving under the influence of marijuana than under the influence of alcohol.

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DealBook: Exchange Sale Reflects New Realities of Trading

On a warm day in Boca Raton, Fla., the host of a reception for an annual financial conference was not a big bank or a powerful exchange as in years past, but a young firm based in Atlanta.

Guests who gathered at the oceanfront resort were surprised. They were greeted with bottled ice water that carried the company’s logo, and as they left, were invited to grab iPod Shuffles.

That event, some four years ago, was the Wall Street equivalent of a coming-out party for the firm, IntercontinentalExchange, or ICE, an electronic operator of markets for derivatives and commodities. Now, the markets upstart is announcing itself to a much larger world with an $8.2 billion deal to buy the symbolic cradle of American capitalism, the New York Stock Exchange.

The takeover illustrates starkly how trading in commodities and derivatives has become much more lucrative than trading in the shares of companies. Warren E. Buffett warned in 2003 that the “derivatives genie is now well out of the bottle,” and that the genie, even after a global financial crisis, was not going back. Currently, derivatives — financial bets tied to underlying assets like oil prices or interest rates, among other things — are a $600 trillion market. Even the parent of the N.Y.S.E. attracted its suitor largely because of its ownership of Liffe, a major derivatives exchange in London.

For many, the Beaux-Arts New York Stock Exchange, and images of traders looking despondent or exuberant on its floor, represent what making money is all about. Yet Wall Street itself has found it more profitable to bet on fluctuations in natural gas or corn or on interest rates. The financial industry often does so electronically and through platforms in cities as scattered as London, Chicago and Atlanta. The biggest bonuses each year are typically for traders who reaped rich gains on these often complex financial products.

That change, decades in the making, has left the New York exchange, with roots going back 220 years, in an increasing difficult position as trading volumes slump and profit margins stay razor thin. While its acquirer has pledged to keep a dual headquarters in the exchange building in Lower Manhattan, as well as in Atlanta, the center of power in finance long ago migrated elsewhere.

The success of the newly combined companies hinges on the derivatives business. ICE is hoping that a greater share of derivatives trading will go through its clearinghouse operations, which act as backstops in case one party defaults. It is being aided by the Dodd-Frank financial regulatory overhaul, which is forcing Wall Street banks to push their derivatives trades into clearinghouses and regulated exchanges.

“For the past decade, our solutions made our markets increasingly electronic and increasingly clear,” Jeffrey C. Sprecher, chief executive of ICE, said this month. “Today, financial reform is imposing that vision on many markets through a rule-making process.”

While Dodd-Frank compliance is still in its early days, and the volume of derivatives trading remains depressed amid broader economic uncertainty, the law is ultimately expected to cement ICE’s business model into the regulatory code.

“Despite the complaints, there’s no question that at the end of the day, Dodd-Frank will be a financial boon to exchanges,” said Bart Chilton, a Democratic member of the Commodity Futures Trading Commission, which regulates derivatives.

Still, such a development will not do much for the traditional business of the New York Stock Exchange. Mr. Sprecher said on Thursday that he was committed to keeping the floor of the exchange open. But according to people briefed on his plans, he intends to use the stock trading operation and its steady cash-generating abilities to finance future deals and expansion efforts.

Nowhere have the changing fortunes of ICE and the parent of the New York exchange, NYSE Euronext, been more apparent than in their value on the stock market. In April 2011, when ICE first tried to acquire NYSE Euronext in league with Nasdaq OMX, it was worth about $1.5 billion less than the New York company. Just over a year later, ICE was worth nearly $4 billion more than NYSE Euronext, even with less than a third of its revenue.

ICE was founded in 2000 by Mr. Sprecher, who began his career developing power plants. In the 1990s, he saw that many power companies and financial firms wanted to hedge their investments in energy with financial contracts, but the market for these contracts was disorganized and opaque.

Mr. Sprecher bought an obscure exchange for buying and selling electricity in Atlanta and turned it into ICE with financing from BP and Wall Street firms, including Goldman Sachs and Morgan Stanley.

Banks were drawn to the idea of a standardized place to buy and sell derivatives tied to the value of oil and other commodities. But they also hoped to create a competitor to the virtual monopoly position being built up by the Chicago Mercantile Exchange in futures trading.

“You talk to people in Chicago, they basically think that ICE is just a front for the banks,” said Craig Pirrong, an expert in futures trading and director of the Global Energy Management Institute at the University of Houston.

As the company grew through a quick series of acquisitions, Mr. Sprecher won a reputation for being the “enfant terrible” of the energy industry, with a “sharp eye for identifying opportunities and seizing on them in a very aggressive way,” Dr. Pirrong said.

Early on, ICE sought to move all trading onto computers, allowing firms to buy and sell contracts 24 hours a day. Soon after buying the International Petroleum Exchange in London, ICE shut down its trading floor.

“They were a technology company from Day 1,” said Brad Hintz, an analyst with Sanford C. Bernstein.

ICE also decided to fashion its own clearinghouse, rather than tap an outsize firm. It expanded through acquisitions, planting the seeds for growth in 2008, when it took over the Clearing Corporation, home to a popular derivative known as a credit-default swap.

The Dodd-Frank overhaul may provide additional benefits for ICE. Under the law, exchanges must turn over public and private information to outside data warehouses, which will, in turn, share the information with regulators. Sensing an opportunity, ICE created its own warehouse, named ICE Trade Vault.

ICE and its Chicago rival, CME Group, have also moved in recent months to convert swaps trades, which are facing more scrutiny under Dodd-Frank, into old-fashioned futures contracts. Futures trading is lucrative territory for the exchanges in part because they can shut out competitors.

“The reality is that there are incentives to convert swaps into futures, where there’s less competition,” said Richard M. McVey, chief executive of MarketAxess, an independent trading platform that is expanding into the swaps business. “There’s no requirement for CME and ICE to open their futures clearinghouses to other exchanges.”

Despite its growing prominence, ICE has a small footprint in Washington. With only two full-time lobbyists, the company relies on Mr. Sprecher to communicate with regulators.

“Jeff is the company,” one official said, though others said he had loosened his grip over the last year or so.

He is well received, officials say, in part because he has embraced some reforms. Unlike executives of other exchanges and financial firms, Mr. Sprecher did not resist an effort in 2009 by the Commodity Futures Trading Commission to close certain loopholes.

Officials recall him saying, “Tell me what the rules are, and I’ll make money with them.”

Michael J. de la Merced contributed reporting.

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New chief of California's prisons named

SACRAMENTO — Gov. Jerry Brown on Wednesday named a vocal advocate of shorter sentences and community treatment to run the state's crowded and troubled prison system.

Brown announced the selection of Jeffrey Beard, 65, the retired former Pennsylvania prisons chief, to succeed Matthew Cate, who stepped down last month after four years as secretary of corrections in California. Cate is now leader of the California State Assn. of Counties.

Beard, whose appointment is subject to Senate confirmation, spent nearly four decades in corrections in Pennsylvania, starting as a counselor and advancing to prison warden, eventually spending nine years as department head. He completed an expansion of that state's prison system, including the addition of 32,000 inmate beds.

He left in 2010, advocating for laws that put more criminals into work-treatment programs instead of prisons, telling lawmakers that an "over-reliance" on locking up non-serious offenders did little to improve public safety.

Though an official start date was not announced, Beard joins Brown's administration at a critical time. The Department of Corrections and Rehabilitation has until Jan. 7 to produce a plan for reducing prison crowding or face the renewed threat of federal orders to release inmates early.

In addition, a federal receiver is attempting to negotiate terms for California to resume control over the delivery of healthcare to inmates. And the parole and healthcare divisions are laying off staff.

In announcing the appointment, Brown said Beard "has arrived at the right time to take the next steps in returning California's parole and correctional institutions to their former luster."

Beard's successor in Pennsylvania says Beard will fit right in.

"I think you guys hit a home run," said Pennsylvania Corrections Secretary John Wetzel.

Wetzel, who was appointed eight months after Beard retired, said the former director weighed in frequently with crucial advice and provided input on new legislation intended to reduce prison crowding in that state and on expanding community treatment and diversion programs.

In 2008, Beard lent support to a proposal to ease county jail crowding by sending felons serving more than two years to state prison. But it allowed for medical release and early release of nonviolent offenders who completed treatment and education programs.

Andy Hoover, legislative director for the Pennsylvania branch of the American Civil Liberties Union, said Beard played an active role in developing corrections policies and promoting them before the Legislature.

But Beard has critics as well, some of whom hold him responsible for expanding the use of solitary confinement in Pennsylvania and for a two-month moratorium on parole releases after the murders of two Philadelphia police officers. The moratorium caused such overcrowding that Pennsylvania began sending inmates to serve time in other states.

Hoover said Beard was caught in a political bind, carrying out policies he had not set. "He was in an unfortunate position," Hoover said. "It was very much out of his hands."

Corrections historian Dan Berger, who was working on his doctoral degree at the University of Pennsylvania at the time, disagrees.

"Beard does not have a good reputation on health and human rights in prison," Berger said. "He gives more rhetoric to sentencing reform than believes it."

After retiring in 2010, Beard joined Pennsylvania State University's Justice Center for Research, and he has worked as a private consultant to a number of states, including California. He advised Sacramento on litigation over the care and housing of mentally ill offenders and has toured California prisons.

Beard is not shy about voicing opinions on where the criminal justice system fails. In 2010, he told Pennsylvania lawmakers that heavy reliance on incarceration of low-level offenders "has proven to have limited value in maintaining public safety."

"We must stop treating all offenders the same and move away from the 'get tough on crime' philosophy of locking up less serious offenders for longer periods of time," he told them.

In a 2005 commentary in an industry publication, Beard called for a rethinking of "who really belongs in prison" and an end to the then-popular "scared straight" programs he felt increased the likelihood that freed inmates would commit future crimes. "We must have the will to put an end to feel-good and/or publicly popular programs that simply do not work," Beard wrote.

Corrections officials said Beard was unavailable Wednesday but released a single statement quoting the incoming secretary as saying he was "honored" to be appointed "for this important public safety position."

paige.stjohn@latimes.com

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