The Ethical Barometer

The Churchill Downs cited Mr. Baffert’s continued unwillingness to accept responsibility for the failed postrace drug test of the 2021 Kentucky Derby winner, Medina Spirit.Medina Spirit’s victory was revoked.

Mr. Baffert’s horses have won the Kentucky Derby six times.  His career earnings total $344 million.   But, Mr. Baffert has had more than his share of controversies. His autobiography includes his stories of skirting rules.

One of the non-quantifiable benefits of ethics is trust.  If someone has never had a question about following rules, their explanations when facing an accusation hold some weight.  Without trust, skepticism abounds.  From the little boy who cried wolf too often to the Baffert stories about how his horses came to test positive, the credibility gap grows.  So does the length of the suspensions.

Netflix is cracking down on memberships used all around the family.  Mom and Dad are kicking the kids off because Netflix is on to the whole fam deal for one subscription.  Now Costco is cutting off the way nonmembers were gaming the system.

Costco has patrols at the entrance — you must show your card.  Costco has patrols at its exits.  After you walk through the hot-dog area you can’t escape without getting your receipt marked with a yellow highlighter.  That kind of crackerjack security system couldn’t possibly have flaws.

Enter the neighbors, relatives, and friends who use the self checkout lines at Costco.  You did not need to worry about ID and photos on the card you were using.  No one was checking and you could sail through payment, the hot dogs, and on to the highlighter without actually having your own Costco membership card.

No more!  Costco is on to the gamers.  You will now have to show your ID at the self checkout lanes. No more loading up on one membership.  Now the self checkout lanes will be as gummed up as the regular lanes with yet another security checkpoint added to the whole Costco experience.

Funny, the little fees for which we will sell our souls. Funny how the dishonest impose time costs on those of us who pay for memberships.  Makes you want to do some serious damage with a yellow highlighter.

Well, at least it’s not bribery this time.  French authorities raided the headquarters of the international organizing committee on their suspicions of embezzlement.  There were corruption suspicions in the 2016 Rio games and in the 2021 games in Japan. Not to mention the Salt Lake City Winter Olympics and their merry band of “briberious” manipulators.

Let’s face it — some of the people running the Olympics just cannot resist cash.  Perhaps cleaning house could help.

Joshua Robinson, “French Authorities Raid Offices of Paris 2024 Olympic Organizers,” Wall Street Journal, June 21, 2023, p. A14

We have known the answer to, “Would you sell your soul for a Louis Vuitton bag?” for some time.  Ongoing raids of luxury stores by looters seizing the luxury brands is not just the sale of a soul.  It’s a sale that ends up on TikTok, with great pride and no fear of prosecution.

But, the price of a soul is declining.  Dollar Tree reports that their gross margins have shrunk 30.5% so far this year due to theft.  Their usual shrinkage rate is 3.5%. Their level of sales is up but theft still takes them into negative category. Dollar Tree and Christian Dior look the same now.  There are security guards looming at the doors of both store chains.

Oh, dear prosecutors, where art thou?

The reason? “Violent incidents” resulting in stolen property. It’s gang looting, gang! Then the thieves post themselves on TikTok in the middle of the looting.  “A culture of impunity drives the market for retail theft.”  Indulging criminals is no way to run a country.  Because of that we are approaching a point of having no way to run a store.   Target is grappling with that sad reality.

The result?  Target closes stores in high-crime areas, leaving the residents there with no place to shop. The looters are eating their own.  It happens when the rule of law breaks down.

In 2006, a member of JPMorgan Chases’ bank’s risk department flagged the late Jeffrey Epstein’s cash withdrawals (up to $750,000 per year) two years before Mr. Epstein entered a guilty plea to solicitation of prostitution with a minor.

Still, the relationship continued. But staff members were onto him.  E-mails referred to the convicted sex offender as “Sugar Daddy.  In 2010, the bank’s compliance department flagged a loan to Mr. Epstein in relation to a modeling agency that had been charged with bringing underage girls into the United States.

Finally, after one meeting with Mr. Epstein, held in 2013, the head of asset and wealth management “fired” Mr. Epstein as a client. Way to muster some backbone.

We do not know the full extent of those who were involved, inextricably intertwined, or knew about Epstein.  As it unfolds, even our already too numb consciences are still shocked.

A mob took over a gas station food mart in Compton, California at 2:30 AM on Sunday, April 16. They took thousands in beer, condoms, and cigarettes.  Not exactly the same as Valjean stealing bread.

Meanwhile, across the country in Philadelphia, 10 men managed to steal $200,000 in dimes from a truck carrying $750,000 in dimes from Philadelphia to Florida. Must have been needed for the high stakes mahjong matches down there.

In the meantime, how will the dime thieves cash in the dimes?

Meta (nee Facebook) employees (who are left) are griping.  No more free laundry service.  Free dinner has been pushed way back on the clock to prevent employees from taking food home. Those “micro kitchens” at their headquarters do not have enough snack replenishments. Not to mention the losses they are experiencing with their options because Zuckerberg’s run in his authority-defying hoodie is over.

They were living their best lives at a company paying too much to too many and offering too many perks:  free food, clean clothes, and not many time demands at work.  Now the real world has hit Silicon Valley.  Welcome to the office, dear ones.  Bring some protein bars from home, grab some Tide pods, and swing by Whole Foods for dinner.  Welcome to Kansas. It’s a hard-knock life, this working for a living.

Sheera Frenkel and Mike Issac, “Mass Layoffs and Absentee Bosses Lead to a Moral Crisis at Meta,” New York Times, April 12, 2023, p. B1.

The Barometer noted that the Miami Heat had a fairly large branding error with their home base, i.e., the FTX Arena.  Then the mental recollection wheels began to turn.  Adelphia graced the home of the Tennessee Titans before the founder and several officers of that collapsed company ended up in the hoosegow for using the company as a piggy bank. The Philadelphia Flyers and 76ers have had their home graced by the brands of Wachovia, First Union, and still struggle through now with Wells Fargo, the home of 3.5 million fake accounts.

The poor Houston Astros had Enron Field. Enron executives went on to 9 months to 24 years in prison after that company’s overnight collapse. Perhaps there was a contagion because MLB concluded the Astros cheated, but let them keep their World Series title.  No harm, no foul.

The Nets has its arena in Brooklyn branded with Barclays.  The bank’s CEO’s connections with Jeffrey Epstein have been dogging the bank and CEO for several years.  MCI, nee WorldCom, graced the Washington Wizards’ and Capitals’ arena before WorldCom became the largest bankruptcy in history in 2002.

The Los Angeles Kings and Sparks had their facility named the HealthSouth Training Center until that $3 billion accounting fraud was uncovered. It is now the Toyota Training Center. HealthSouth spread its branding wealth around because, after all, it was specializing in sports injury and surgery rehabilitation — The San Antonio Spurs also had a HealthSouth Training Center.

There are ones to watch.  Comerica’s stock is down 38% and that means trouble might lie ahead for the Detroit Tigers. the Texas Legends, and Dallas Stars. In fact, those regional banks are big arena names around the country.  Watch for those names to fade. Crypto.com and the LA Clippers may not be a good brand affiliation post-FTX.

Sports writers call it the arena curse. The Barometer sees it as bad judgment.  How many Tigers fans switch to Comerica because they saw it at a baseball game?  And how many Nets fans take their banking dollars over to Barclays because they were intrigued at a basketball game?  These are expensive marketing ploys akin to vanity license plates.  Lots of people seem them, but to what end? The car owner feels good but the rest of us just shrug our shoulders and do just as well  keeping  the extra money as we accept, for no extra charge,  the state-issued plates. Save your marketing dollars.  For the teams — save your reputations.  For investors, if you see a sports field, facility, or arena named for a company, do not invest.  Run away.

For all the crypto currency fans out there who have been saying, “What could possibly go wrong?” in a financial industry no one can explain, and, as if FTX was not enough, we have this:

Samuel Lin, the compliance chief for Binance Holdings Ltd. from 2018-2022, has been sued by the U.S. Commodities Futures Trading Commission (CFTC) with willfully aiding and abetting his company in evading U.S. laws. Interpretation:  the compliance officer set up a system for evasion of his own compliance controls.

And, Binance has refused to provide the CFTC with Mr. Lim’s residential address in Singapore so that he can be served with an investigative subpoena.

The complaint alleges that Binance, despite its denials, has long been soliciting customers in the United States. Binance was soliciting U.S. customers through a complex structure to evade U.S. laws and regulations.  The company used personnel and vendors in the United States and actively cultivated VIP customers in the United States.  However, the complaint also alleges that once customers were hooked, Mr. Lim helped them evade compliance controls.  Mr. Lim  told customers to use VPNs to avoid Binance’s internet protocol address-based controls.  Off-shore companies were the recommended tool for evading Binance’s anti-money laundering controls.

The complaint in the suit provides lesson in the following axioms:

(a) If you are doing stuff that just might cross a line here and there, don’t brag about it in e-mail; and

(2) “Criminals are Stupid” — the title of the Barometer’s criminal law professor’s book about his experiences as a prosecutor.

Some gems from the complaint in Commodities Futures Trading Commission v.Changpeng Zhao, Binance Holdings Limited, Binance Holdings (IE) Limited, Binance (Services) Holdings Limited, and Samuel Lim https://www.cftc.gov/PressRoom/PressReleases/8682-2

Binance has been aware that its compliance controls have been ineffective. As Lim—at the time Binance’s CCO—recognized in an October 2020 chat with other Binance compliance personnel, Binance’s compliance environment has amounted to “email sending and no action . . . for media pickup . . . I guess you can say its ‘fo sho.’”

As part of an audit for a customer, the Binance employee who held the title of Money Laundering Reporting Officer (“MLRO”) lamented that she “need[ed] to write a fake annual MLRO report to Binance board of directors wtf.” Lim, who was aware that Binance did not have a board of directors, nevertheless assured her, “yea it’s fine I can get mgmt. to sign” off on the fake report. Around the same time as the referenced “half assed” compliance audit.”

In November 2020 the MLRO exclaimed to Lim in a chat, “I HAZ NO CONFIDENCE IN OUR GEOFENCING [screening out customers from certain countries, e.g., the U.S.].

in February 2019, after receiving information “regarding HAMAS transactions” on Binance, Lim explained to a colleague that terrorists usually send “small sums” as “large sums constitute money laundering.” Lim’s colleague replied: “can barely buy an AK47 with 600 bucks.”

And with regard to certain Binance customers, including customers from Russia, Lim acknowledged in a February 2020 chat: “Like come on. They are here for crime.”  Binance’s MLRO agreed that “we see the bad, but we close 2 eyes.”

Yes, indeed, it was a web of crime and Binance officers, such as they were, had their eyes wide shut.  Alleged crime, and alleged eyes shut that is.

We are still cleaning up bank messes from 7 years ago as we find ourselves in yet another.  It was 2016 when the news hit that all the new accounts Wells Fargo was boasting about were not real.  By the time the dust settled, regulators found 3.5 million fake accounts.  The Barometer would have gone into business if she had understood you can just make stuff up.

And the Wells scandal broke just 8 years after we lost Lehman and Wachovia and a host of other financial institutions in 2008.

Now, as banks were folding right and left over the past 10 days, Wells Fargo’s former head of community banking, Carrie Tolstedt, agreed to enter a guilty plea to obstructing regulators. The allegations were that Ms. Tolstedt knew of the Wells “fakery” as early as 2004, but kept it quiet. The regulators, ever slow on the uptake, were trying to figure out the fake account scandal.

Wells paid $3 billion to settle the charges of faking accounts.  Ms. Tolstedt could serve up to 16 months in prison.

Now we are facing Silicon Valley Bank, Signature Bank, First Republic Bank, and Credit Suisse, the banks on the brink. Despite clean audit opinions these banks somehow ran out of money.  Go figure.  No worries — we will sort through it all over the next seven years — about the time the next scandal breaks wide open.

Dave Michaels, “Ex-Wells Executive to Enter Guilty Plea,” Wall Street Journal, March 16 2023, p. B10.

The Barometer has noted the presence of a nearly instantaneous quality-of-service survey in her inbox seconds after Clear has “cleared” her through TSA airport security.  Except in Atlanta.  The Atlanta airport is a mess.  The Clear lines there serpentine in a Disney World manner and length.  You pay extra fees to Clear to avoid lines. In the case of Atlanta, however, Clear has managed to make its lines longer than the lines for those who just show upsand get in the short lines. Clear has high ratings if you can skew the data.

When the Barometer has her car serviced, there will be e-mails and calls of warning, “If you are not satisfied with your service experience, let me know so that I can fix it before you fill out a survey that is coming from the auto manufacturer.”  How will the manufacturer know what dealerships really do a good job if the dealership is hiding problems and cooking the customer surveys?

The survey madness was the focus of a book called “The Ultimate Question.”  That question (s) is “Are you likely to return to ________?” or “How likely are you to recommend ________?” Supposedly, good numbers on those questions translate to successful businesses. But not if you are fooling around with strategies pre-survey.

Airbnb owners are posting “Vacation Rental Rating Guides” to persuade guests to use the appropriate number of stars. Grade inflation in rental property evaluations.! Fours star actually means average as renters follow their instruction sheets.

The average score on Airbnb evaluations is 4.5.  So, you get an average rating that is recorded as excellent.   Then there are the guests who refuse to give a bad score, fearful of hurting the owner.  Hello renters! Airbnbers and other property rental firms just charged you $600 a night for a house that was cleaned by a 13-year-old neighbor.  A little negativity could help their business if they were willing to listen.

No one listens. No one speaks, at least truthfully  So, this odd world of surveys has brought us feedback of excellence without the disclosure of the baggage of gaming the system. Without Atlanta, Clear looks great. A car dealership gets fabulous service ratings, until you get there and experience the reality of manipulated data. With a ratings sheet posted on the refrigerator that tells customers what to put, all Airbnb properties are a slice of heaven. Owners achieve the highest ratings possible even when the floors are filthy.

The ultimate question has, ironically, fooled the customers.  Everyone is too busy gaming the system to be bothered by details about improving service and eliminating glitches.

When the story of the multibillion dollar collapse of FTX broke, the Barometer thought Dr. Jerry Robinson (Peter Bonerz), orthodontist office mate of Dr. Bob Hartley on The Bob Newhart Show had succumbed to financial temptations. You decide:

Dr. Jerry Robinson played a loyal friend in the series and went on to direct successful television shows (Murphy Brown).

Samuel Bankman-Fried has been thrown under the bus by his colleagues and friends. He’s the only one involved in the gigantic FTX fraud who has not entered a guilty plea.