The Ethical Barometer

It was a New York City corruption trial, so that may explain a great deal. However, even by New York City standards, this is one for the books. Businessman Jeremy Reichberg, AKA “the fix-it guy” expected favors from the NYPD, such as a police escort to a nail salon for a nurse he wanted to date. Then there was the transport by police boat to a barbecue. In exchange, foamier Deputy Police Inspector, James Grant, received a junket to Las Vegas from Mr. Reichberg (complete with a prostitute). Following the acquittal of Mr. Grant and the conviction of Mr. Reichberg, Mr. Grant turned to Mr. Reichburg and said, “You’re going to be okay.” One wonders if the jury saw that promise. Mr. Grant’s defense was that anything Mr. Grant did was based on “friendship.” The two grew up together in the Borough Park neighborhood, and Mr. Grant’s lawyer argued that friends ask for help and friends give help. The distinction of help coming from public funds escaped notice.

Boeing was desperate for titanium — the nuts, bolts, rivets, washers, all thousands of them for its new Dreamliner aircraft (its fuel-efficient competition to the super-size Airbus). The parts had to be titanium because of the weight issues. However, in 2006, there was a worldwide shortage of titanium. For help with its supply chain issues, Boeing turned to McKinsey & Co., the gold standard for offering “best practices” to its clients. And McKinsey did come up with a proposal: Boeing would join a titanium mining partnership that would be financed by a Urkranian oligarch to mine titanium in India. The McKinsey proposal indicated that Boeing would have to do “character due diligence” on the deal because of the risks of doing business with oligarchs, especially oligarchs from the Ukraine who are close to Vladimir V. Putin. And throw in some other partners from Sri Lanka, India, and Hungary and you have warning buzzers.

In fact, a PowerPoint slide attached to the McKinsey proposal indicated that winning permits for the titanium mines would involve bribing officials of the Indian government. The slide emerged in the course of discovery that the Justice Department was doing on a case involving Dmitry Firtash, the head of the mining consortium.

Everyone denies that there was bribery, but the slide indicates that there were a number of Indian officials open to bribery. Boeing and McKinsey have both cooperated with the Justice Department.

This one smells. Funny how denials seem to be fade as PowerPoint slides emerge. That’s because :truth percolates.

Annette Bongiorno, 70, secretary to Bernie Madoff, was released from prison. She had been sentenced to 6 years in prison and had served about 2/3 of her term. She was eligible for early release under the new federal law, the First Step Act, which just became effective last week. Her advanced age was one factor in her eligibility for early release. At the time of her sentencing, the federal judge recommended that she spend her last year of her term at home.

During her testimony at trial, Ms. Bongiorno admitted to owning a Bentley and two Mercedes-Benzes. She also said that she had become frugal as she grew older, selling her Boca Raton home and downsizing by purchasing a condominium for $6.5 million. She had a $50 million investment account, a $300,000 salary per year, and the luxury of being shuttled to work in a car service each day. During her testimony she assured the court that the perks were not a means of keeping her quiet. She said that she never understood anything; she just typed what she was told to type.

Right there might have been a clue. Also, a secretary with three luxury vehicles might also have been a red flag. “I knew nothing” is a popular defense these days, in business and politics.

Fare evaders cost the New York City Metro Transit Authority $215 million this year. The number of fare evaders is up from 2017: 1.8% of riders to 3.2% for 2018. How do they do it? Use the open emergency exit door. Enter as passengers exit via this unauthorized means. About 61 people per hour do that. Vault over the gates — gymnasts do well with jumping the turnstiles. Children slip under the turnstiles. Why do they do it? The rationalizations abound:
1. “My Metro card was not working.”
2. “I don’t feel like going all the way there (one block to a machine) to put money on my card.”
3. “Sometimes it’s easier to use the door.”
4. “I’m sad that the Metro is losing money, but I’m more sad about what’s happening to black people.”
5. “They don’t fix the lights. They are not doing what they are supposed to do.”

There is the problem with enforcement. The Manhattan district attorney’s office decided to no longer prosecute fare evaders. Metro agents faced with people whose cards are not working often tell riders to just get on through the emergency exit. The emergency door exit alarms were disabled in 2014, so riders getting off the subways use that door to exit and then leave it open, a temptation for the fare evaders. The influx at the emergency door is so great that those exiting have to go back to using the normal exits — they cannot get through.

If it’s any consolation, the evaders interviewed do not feel bad about their evasion. For further consolation, evasion is worse for buses, about 16% of riders do not pay.

William Forsyth, the special counsel working with the Michigan Attorney General in investigating how Michigan State handled the sexual abuse allegations involving convicted sex offender Dr. Larry Nassar, has issued an interim report. That report concludes that there was and is a “culture” problem at Michigan State that continues as evidenced by the conduct of Michigan State during the investigation: “(1) issuing misleading public statements, (2) drowning investigators in irrelevant documents, (3) waging needless battles over pertinent documents, and (4) asserting attorney/client privilege even when it did not apply. Mr. Forsyth added, “These actions warrant extended discussion because they highlight a common thread we encountered throughout the investigation into how the University handled allegations against Nassar. Both then and now, MSU has fostered a culture of indifference toward sexual assault, motivated by its desire to protect its reputation.”

Michigan State has responded through a spokesperson noting the university has been “very cooperative,” and that it has a “right” to assert its attorney/client privilege. According to the report, university lawyers accompanied all employees to their interviews with the special counsel.

One of the problems with this investigation is that there are still criminal charges pending that the Michigan Attorney General’s Office is handling, including against the former president of the University, a former dean, and the former gymnastics coach. ‘Tis a fine ethical line to walk to have the same office conducting a public investigation as those defendants prepare for their trials. Mr. Forsyth admitted as much, noting that he could not issue a final report as long as those charges are pending. In the Penn State Sandusky case, Penn State hired a private attorney (former FBI director Louis Freeh) to conduct an investigation, thus freeing him to release a full report and conclusions apart from what are still the pending final dispositions of cases against administrators there. Michigan State did hire independent counsel to investigate the Nassar sexual abuses, however, the report was one that prepared the university for defending itself in anticipation of litigation.

While Michigan State has made process reforms on its investigation processes for allegations of sexual abuse, Mr. Forsyth is correct. The tone at the top still does not signal the critical need for transparency and truth. In short, there is a difference between legal posturing and ethical conduct. Michigan State is still in the legal Kabuki dance mode. True reform comes when the mask and fancy footwork are dropped.

Here are some headlines from Friday, December 21, 2018. They speak for themselves about the increasing prevalence of ethical lapses:

“Merrill Settles With Regulator,” Wall Street Journal, p. B10 (settlement of $6 million with FINRA for selling shares early in companies it was taking public (IPOs) early to family and friends)

“EU Probes Banks Over Suspected Collusion,” Wall Street Journal,” p. B10 — Yes, despite what happened with LIBOR rates in 2016, the EU has requested records from Deutsche, Credit Suisse, and Bank of America in an investigation into collusion on bond-market manipulation.

“McKinsey Had Dual Roles in GenOn,” Wall Street Journal, p. B10 –In an ongoing issue of conflicts with McKinsey’s role as a bankruptcy adviser, McKinsey failed to disclose to the bankruptcy court that its retirement fund held investments in hedge funds that were creditors of GenCo Energy. McKinsey was serving as an adviser in the GenCo bankruptcy and, ergo, had an interest in the outcome of who gets what in the distributions. McKinsey says its investment arm for its retirement fund is entirely separate and independent. However, just a question from the Barometer’s simple mind: Aren’t the folks working on the bankruptcy beneficiaries of their firm’s retirement fund? A judge screening McKinsey as a potential adviser in the Westmoreland Coal Co. bankruptcy said, “I don’t like being misled, and transparency and honesty are things I believe in.” We used to all believe in those things.

“German Magazine Says Reporter Made Up Facts,” Wall Street Journal, A7; and “German Reporter Made Up Stories and Now Critics Are ‘Popping the Corks,'” New York Times, p. B3. — Der Spiegel published the epic falsehoods of Claas Relotius, including made-up dialogues, characters, and story lines. In the U.S., it is called “fake news.” In Germany, it is Lugenpresse, or “Lying press.” In ethics, we call it just plain wrong. If you want composite characters and intense dialogue, write a novel, not stories for publication as news.

“After 2 Abuse Settlements, Why Is This Priest Still Saying Mass?” New York Times, p. A21. The Catholic Church is certainly all about forgiveness, even after paying two six-figure settlements to one accuser and the widow of another. Forgiveness is one thing; suggesting another line of work is the necessary next step.

“Weinstein’s Request for Case Dismissal Is Rejected by Judge,” New York Times, p. A23.