The Ethical Barometer

Bryson B. Morgan, former investigative counsel for the Office of Congressional Ethics. The New York Times is reporting that ethics inquiries are increasingly met with uncooperative lawmakers. The targets of the ethics investigation simply refuse to turn over requested documents. Luke Broadwater, “Ethics Inquiries Are Increasingly Met by Uncooperative Lawmakers,” New York Times, December 29, 2021, p. A17.

The largest area for Congressional Ethics Office investigations is violations of the STOCK Act (Stop Trading on Congressional Knowledge Act). The STOCK Act is a federal law that requires members to report stock trades within 45 days of their transactions. Yes, Congress passed the act, but Congress also ignores the act. Business Insider found that 52 members of Congress violated the act in 2021. The fines are minimal — $200 — and members have a 30-day grace period to report after being reminded. Still, the members see it as a no-big-deal kind of thing. Let’s see — you know which industries are going to get slammed with new restrictions. Positioning yourself short and timing things along with the legislative schedule is not bad work if you can get it.

Speaker Nancy Pelosi is having none of this ethics stuff. She does not agree on any prohibitions on member stock activity or failure to report. “We’re a free-market economy. They should be able to participate in that.” Mrs. Kettle does not want to point a finger at all the pots who would then clank loudly about all the speaker’s investment opportunities and coups.

Ah, the free market for me, but not for thee, all you insider traders.

The Uyghur Forced Labor Prevention Act, passed almost unanimously in both houses of Congress and signed into law by President Biden last week, bans all imports from Xinjiang (the location of the Uyghur labor and indoctrination camps). However, there is an exception. If U.S. companies can certify “No forced Uyghur labor was used in the making of these goods,” then off they go with imports as usual. However, companies that issue memos and change their import locations are finding bitter backlash on Chinese social media. With bitter backlash come bitter boycotts.

When Walmart announced that it was no longer stocking goods from Xinjiang in the Chinese equivalent of Walmarts and Sam’s Clubs, well, the criticism flew along with cancellations of Sam’s Club memberships. Intel has already apologized for its misstep in sending a memo about its new legal restrictions to its suppliers and vendors. Nike has also been a target of Chinese social media furor. H & M had its online presence canceled in China. Here’s a sample of social media outrage, “[Walmart] is eating China’s rice, yet slapping our face.”

Meanwhile, Chinese companies are seizing the moment. With great pride, they are holding “Xinjiang Fine Goods Festivals” and slapping stickers on everything from linens to socks to apples to walnuts that read, “I come from Xinjiang.” Liza Lin, “Walmart Draws Anger In China Over Xinjiang,” Wall Street Journal, December 28, 2021, p. A1.

The obsequiousness is nauseating. Intel, in an attempt to comply with the U.S. edicts on avoiding sourcing from China’s, sent out a letter to its global suppliers telling them that products sourced from the Xinjiang region of China were problematic. Intel has to certify that its does not use labor or goods from that area. “That area” is where the Uyghur labor camps are located and is the Chinese government’s forced assimilation of religious minorities.

Following the Intel notification to its suppliers, Chinese social media exploded. Like Adidas, Nike, and the Boston Celtics, the boycotts began. H & M lost $74 million in sales over three months after it was tossed from the Chinese internet for its pledge to stop sourcing from Xijiang. Oh, and Kerry Wang, a singer with the TF Boys, a popular “boy band” in China, pulled his gig an an Intel ambassador. As go Chinese boy bands, so go buyers of chip processors all over the world.

So, Intel did what all U.S. companies do — took a knee at the altar of profits, “We deeply apologize for the confusion caused to our respected Chinese customers, partners and the public.” Intel indicated it was only complying with the law. Liza Lin, “Intel Regrets Causing Furor in China,” Wall Street Journal, December 24, 2021, p. B1.

Meanwhile, an editorial in the Chinese government propaganda newspaper, the Global Times called for Beijing to make it “increasingly expensive for companies to offend China.” You go, Beijing. That call-to-action means increasing costs to the Uyghurs and death to human rights.

And then, as a Cryptonite, you can at least prevent others from getting your fortune. Gerald Cotten, the founder of QuadrigaCX (the largest cryptocurrency firm in Canada) modified his will in 2019. Twelve days after that modification he died in India. His wife let the world know of the passing of this Cryptonite king 36 days later. He had a fortune of $271 million, and a business pattern straight out of the underworld. At his death, the firm owed $214 million to its clients.

Conspiracy theories abound — the casket was closed and only a few people actually saw Cotten’s body. Causes of death seem shallow in explanation. And Mr. Cotten had no backup plan — whatever the will said about the disposition of his property, no one can get at it because he failed to leave his passwords. Apparently in the world of the Cryptonites if you lose, you lose. No password, no access. Your bank can shut you down after a few failed log-in attempts. But, if you go into the bank in person and do some penance, mumbo jumbo chants, and present 35 pieces of ID, you are back online. And you don’t lose your funds.

Who are these people who created this new currency world? Who are their investors? And do they do background checks on those running the cryptos? Do they have backup plans on passwords? Apparently not, but they have defied death’s old adage — in a way. They do take it with them, sort of.

John Anderson, “He Took His Fortune to the Grave,” Wall Street Journal,” December 22, 2021, p. A15

The final parent who, like the 36 other parents, worked with Rick Singer and his foundation to leap-frog their children into “good schools” on a cash basis or using other merits their children pretended to have, including test scores and make-believe athletic abilities .Only two parents went to trial — both were convicted.

Michael Nesmith, the cerebral character in the four-man “The Monkees” hit show, has passed away. His life was a fascinating one, including the fact that his divorced mother invented Liquid Paper and then ran the company that made it to support her son in a rather wealthy way. However, that tidbit is topped by the fact that he once sued PBS for violating the copyrights he had obtained for many of the network’s programs. A federal court agreed and awarded Mr. Nesmith $47 million in damages. Of his victory over PBS Mr. Nesmith said, “It’s like catching your grandmother stealing your stereo. You’re glad to get your stereo back, but you’re sad to find out that Grandma’s a thief.” Neil Genzlinger, “Michael Nesmith, the “Quiet Monkee’ and a Music Video Pioneer, Dis at 78,” New York Times, December 11, 2021, p. A20.

Professor William Hanage of the Harvard T.H. Chan School of Public health on the Omicron variant of the corona virus. Goes along with the ancient adage, “If you don’t know, say you don’t know.”

Deutsche Bank, already under a deferred prosecution agreement for involvement in overseas corruption and market manipulation, just got a warning from the DOJ that it may have violated its deferred prosecution agreement in that matter. In January 2021, Deutsche paid a $130 million fine and agreed to a DPA for three years to settle up with the U.S. Then in August 2021, the head of the bank’s sustainability investment area expressed concerns to two executives that Deutsche had “overstated” its use of sustainable investing criteria to investors. She was fired and Deutsche did not disclose to the DOJ that it had received the complaint or that the complainant had been sacked. The Wall Street Journal then caught on, saw the e-mails, and wrote about the story in August 2021. The DOJ officials did a double-take, investigated, and warned the bank that its DPA is in jeopardy.

Deutsche Bank is the bank that can’t shoot straight — literally and figuratively — when it comes to compliance with the law. Despite ethics pledges and promises to toe the line, it just keeps dipping those toes into murky and sometimes black waters, especially in the underworld of international corruption. It is the DOJ’s call on whether to just go ahead with the original prosecution.

The key to successful completion of a DPA is to stay out of trouble for the negotiated period (three years in this case). With Deutsche Bank and its history, the DOJ should have known that’s just not possible. And when you can’t stay out of trouble the next best thing is to ‘fess up to the DOJ. Apparently, that too is a hurdle too tall for Deutsche Bank. The Barometer once warned a board of directors that their company was going to get a DPA from the Justice Department for the stunts they had just pulled. One director chirped, “But doesn’t everybody get a DPA these days?” Actually, the answer was, “No, no they don’t.” Most companies think that multi-million and multi=billion-dollar fines are not good for business and would prefer running their companies without an onsite federal monitor poking around and probing every nook and cranny. Still some companies suffer from the Deutsche Syndrome, which is so Alfred E. Newmany — “What? Me Worry?”.

Engineers at Nikola had warned then-CEO Trevor Milton not to call the company’s hydrogen-powered truck “functioning” and “fully built.” Still, Mr. Milton went ahead and held an event at which a Nikola prototype was pushed down a hill whilst making a video that made it look like the truck was really clipping along. The truck had no fuel cell or hydrogen gas storage tanks (as would be required for a hydrogen-powered truck).

In addition, Mr. Milton said publicly that the company had “billions of billion of dollars in orders.” Actually, Nikola had only one binding order.

The company disclosed the amount of the fine, but offered a “Not to worry,” because the company will seek reimbursement from Mr. Milton. Mr. Milton, through his lawyer, said that he would defend against “false allegations leveled against me by outside detractors.” An internal report and now an SEC investigation have concluded that Mr. Milton made false statements and did not have a truck that was operational. Those darn detractors.

Do a search of this site, and you will find the saga of Jes Staley and Barclays dates back to 2017. As a new CEO of Barclays, Mr. Staley tried to force the unmasking of a whistleblower who had reported concerns about Staley’s recruiting of former JPMorgan colleagues. If you want to undermine an ethics and compliance program, there aren’t many ways better than intimidating employees who report concerns and issues.

Nonetheless, the Barclays board decided to leave Mr. Staley in place. Four months later, Barclays’s chief compliance officer resigned. One year later, in 2018, Mr. Staley paid a personal fine of $868,501 to British authorities for outing that whistleblower. Still, the board allowed him to stay on as CEO.

In 2020, Scotland Yard concluded that Mr. Staley had not been truthful in response to questions about his relationship with Jeffrey Epstein. The late Jeffrey Epstein (he hung himself while in prison) hosted Mr. Staley on the Epstein island of sin and debauchery. Mr. Staley assured the board and Scotland Yard that his wife was with him and he knew nothing about the underage girls brought to the island by Mr. Epstein. Mr. Epstein was well known in criminal law circles. He had worked out a plea deal with Florida authorities in 2008 on charges of sex trafficking. That level of criminal activity did not stop Mr. Staley and Messrs. Epstein, Bill Gates, Leon Black, and Leslie Wexner from being jolly good friends. But Mr. Staley apparently told the board that he had stopped that Epstein affiliation.

Just two days ago Mr. Staley resigned as Barclays’ CEO because the lack of candor issue emerged again. This mess could have been avoided if Barclays’s board had just sacked Mr. Staley when it had several opportunities documented by the Barometer beginning in 2017.

The best measure of any company’s culture is the company’s response when an executive doing well on the earnings side has messed up. By letting questionable conduct go,the board allowed Mr. Staley to let loose with more genuinely bizarre behavior. This time he had to go — lying to the board gets you the boot or resignation, however they want to characterize it all.

If only the board had seen outing a whistleblower as a serious offense. If only the board had seen in 2018 that their CEO was blind to propriety. If only the board read The Ethical Barometer. Give a shady CEO an inch, and off they go, miles wide and deep into more impropriety and downright creepy behaviors.

The Barometer’s anecdotal evidence from decades on campuses is that the 38% is low. In addition, 27% admit listening to music on unlicensed platforms in the past month and 23% used illegal stream-ripping services in the past month.

SOURCE: International Federation of the Phonographic Industry (IFPI) survey of 19,000 adults ages 16 to 64 in 18 countries

There is cheating in the game of bridge. Oh, there has always been some type of cheating when players in contract bridge sat around the card table. The tapping foot, the position of pad and pencil, and other physical techniques to alert partners to “a good suit.” Just as in the halls of academe, when folks’ skills are tested online, cheating does go up. With online bridge you can’t observe everything that is going on in online competition– players could be on the phone, on the sofa together, or tapping into spectator visual lines. And apparently they have. Cheating in the American Contract Bridge League is so rampant that the disciplinary folks cannot keep up with the accusations.

The money in contract bridge is only in the six figures for a few souls at the top of the league. So, the cheating is not for results, money, or ranking. One top player said, “I did it because it was so, so easy, and so tempting.” With school, certification exams, and even on-the-job training, bring back live and in-person testing. Get those bridge players back in a room together, masked up, so that you can watch them like a hawk. Oh, and check to make sure there are no cheating tools underneath their masks before the games begin.

If the Barometer had known you could just make stuff up and be successful at business, well, an entrepreneur’s dream. The ongoing Theranos trial has produced a conga line of witnesses who have testified that the technology Elizabeth Holmes was selling did not work, or, perhaps more accurately, did not exist. Ms. Holmes’ defense appears to be shaping up as something along the lines of pointing to her ex-boyfriend/svengali and saying, “He made me do it!” You never trust the people you cheat with; they will throw you under the bus.

This has been a year for whoppers when it comes to business and making stuff up. Nikola’s now elusive CEO, Trevor Milton, produced a video of a supposed alternative fuel truck racing along mightily. However, there really was no such truck or alternate fuel — it was just a big-wheeler sent rolling down a hill. Then came Lordstown and its electric truck, touting preorders for its vehicles of the future to lure investors. But one really can’t count a non-binding “kinda, maybe, if” deal an order. Those accountants get testy about “mirages,” as a short-seller called Lordstown orders, being counted as sales.

Let us not forget Ozy Media, now defunct, if it ever was “funct.” That crowd had one of its executives pretend to be a YouTube executive on a call with Goldman Sachs in order to convince the Goldman folks of its potential and, therefore, ante up funding. Goldman thought the YouTube executive’s voice sounded funny and declined to ante up. GM was not as wise with Nikola and the list is long and distinguished of those hoodwinked in the Theranos scam.

The WeWork folks could not go public once its books were subject to scrutiny. It went away for a time, and its charismatic CEO took a payout and left. WeWork changed its name to We and took the necessary billions in write-downs to get its value where it should have been. It turned out that all that office space was not as valuable as represented and the furnishings were just staging.

Here’s the best part. We just did its IPO and it found investors and its value has soared. There’s a sucker born every minute and then reborn when the same folks return with new ideas, promises, and numbers. These winsome entrepreneurs can talk a good game even when they are faking it. The pattern is always the same — promise, promise, promise, talk, talk, talk, keep talking, start spinning, reassure, and end with disappearing. You can always come back. The best part is — they will let you. They fake it because there is always someone who believes you will make it.

The Office of the Inspector General of the FBI issued its report on the failures of the FBI in handling the investigation of the sexual assaults of female gymnasts at Michigan State by Dr. Laurence G. Nassar (who now sits in prison for life). Those failures are shocking in either incompetence or callousness or both. The FBI is in shabby condition. Something deeply cultural is wrong in this agency.

Here’s a timeline on what went on as the Nassar serial sexual assault complaints arose:

• In July 2015, following a USA Gymnastics internal investigation into allegations of sexual assault by Nassar against multiple gymnasts, USA Gymnastics President and Chief Executive Officer Stephen D. Penny, Jr., reported the Nassar allegations to the FBI’s Indianapolis Field Office.
• For the next six weeks, the Indianapolis Field Office talked with three gymnasts, kept limited records, and notes and made no further efforts or inquiry.
• The Indianapolis Field Office did not advise state or local authorities about the allegations and did not take any action to mitigate the risk to gymnasts who Nassar continued to treat.
• The Indianapolis agents and Assistant U.S. Attorney (AUSA) determined that, if the FBI had jurisdiction, venue would be most appropriate in the Western District of Michigan and the FBI’s Lansing Resident Agency, where MSU is located and where Nassar treated patients.
• The AUSA advised the Indianapolis Field Office on September 2 to transfer the case to the FBI’s Lansing Resident Agency. However, the Indianapolis Field Office failed to do so, despite informing USA Gymnastics on September 4 that it had transferred the matter to the FBI’s Detroit Field Office.
• After 8 months of no further FBI inactivity, USA Gymnastics officials contacted the FBI’s Los Angeles Field Office and met with that office in May 2016 to report the same allegations provided to the Indianapolis Field Office in July 2015.
• When the Los Angeles Field Office contacted the Indianapolis Field Office, the agent in charge said that he had done the paperwork to transfer the case to Detroit. Such transfer paperwork was never located during the investigation.
• The Los Angeles Field Office did open an investigation but did not notify local authorities nor did it take any steps to protect the gymnasts from further contact with Nassar.
• While all of this was going on, an agent in the Indianapolis Field Office, who was nearing retirement, was engaged in discussions with Stephen D. Penny for a job with the U.S. Olympic Committee.
• When the Indianapolis Star broke the Nassar story (and won a Pulitzer for doing so), agents in the Indianapolis Field Office were untruthful in responding to media questions. An agent in the Indianapolis Field Office told a reporter that his office had issued detailed reports to both the Detroit and Los Angeles offices. There were no such reports.
• The Indianapolis Field Office did not document the September 2015 victim interview in a report until 17 months after the interview occurred. The report was drafted in February 2017 and included materially false information and omitted material information.

So, what we have are agents not doing their jobs, lying to others in the agency and to the media, engaging in conflicts of interest as they let allegations lie flat, and backdating reports to make it look like they were doing their jobs. Initially, the Justice Department decided not to prosecute the agents involved. However, on October 5, 2021, the Justice Department announced that it was reviewing its decision not to prosecute.

Add to these shenanigans the Andy McCabe saga. The OIG Report on the shenanigans surrounding the alleged Russian conspiracy concluded that Mr. McCabe “lacked candor” (that would be soft language for “lied) four times, three of which were under oath. Mr. McCabe had been fired and lost his full pension, and the case was referred to the Justice Department for prosecution. The FBI, backed down after Mr. McCabe filed suit. In its infinite wisdom, and perhaps as a means of preserving its poisonous culture, the FBI settled the lawsuit by allowing Mr. McCabe to officially retire, obtain $200,000 in missed pension payments, and have his record expunged of any mention of his firing. If you read the OIG report on his conduct, you will be stunned that the FBI surrendered. Mr. McCabe is not to be trusted.

But there’s more. At the direction of U.S. Attorney General, Merrick Garland, the FBI will be unleashed, with full national security authority, to investigate parents who are showing up at school board meetings to be heard on the content of school curricula, sexual assaults in school bathrooms, and questions about mask requirements. Thank goodness our federal gumshoes are pursuing these scallywags. The national security apparatus let loose on ordinary citizens because of their rhetoric at school board meetings should send a chill down everyone’s spine. Politics aside, these are bad behaviors.

This agency needs a leader. This agency needs to be reined in with discipline doled out and not so easily reversed. This agency is frightening in its utter disrespect of law, order, and rights. Sadly, no one is willing to undertake changes, reforms, terminations, discipline, tear gas, Pine-Sol, and whatever else it takes to clean this joint up and out and restore honor and credibility.