The Ethical Barometer

So read the New York Times sports section headline. The headline was referring to the racist, misogynistic, and homophobic e-mails of Las Vegas Raiders coach (now former coach), Jon Gruder.

For most, that underbelly, along with the phony PR moves of Commissioner Goodell, caused us to walk away years ago. The NFL has thugs, domestic violence, dog-fighting, and a cavalier attitude about brain damage that took too long to address. The writer of the Times piece says that the NFL should be called the “Neanderthal Football League.” Of course it should, but most of us figured that out years ago before the private e-mails confirmed our suspicions. These are neither nice nor honorable folk. Why do people keep giving them money?

One additional lesson from the debacle is that the Gruder e-mails were turned over as part of a Goodell investigation into Daniel Snyder, the owner of the Washington football team, and his management of allegations of an “atmosphere of pervasive sexual harassment.” No one is really sure what Goodell found there because he kept it all quiet. The only public information from the investigation were the Gruder e-mails. Truth somehow percolates.

Let’s let Goodell loose on another team and see what he can come up with on everyone but that team. The safest place in the NFL is being under investigation by Goodell. You will be fine. But the collateral damage will be extraordinary albeit not surprising.

It was their travel records and e-mails that “done them in,” as Miss Eliza Doolittle would say in her flower-girl days. The ex-players, also-rans when it comes to NBA fame, submitted file medical and dental claims for reimbursement from the NBA’s healthcare fund. The league paid the claims even though the players had not received any treatment. They just had an alleged raud ring going. The U.S. Attorney phrased it this way, “Smith (Gregory Smith) submitted claims for root canals and crowns done by a dentist in Beverly Hill. Mr. Smith was nowhere near Beverly Hills, or even in the state of California” at the time. Mr. Smith was playing basketball in Taiwan.

Clever chaps, except for the higher-leaning analyses that thinks through how frauds come to the surface. Truth percolates, and it bubbled up here when investigators just collected player locations. Running a scam means you are running against the truth meter.

There must be some brain function that turns off as folks climb the ranks of power. They can’t see a conflict to save their lives, or even just their careers. Three senior Federal Reserve officials were dabbling in individual stock trades, with some of the transactions occurring on the eve of Fed announcements on interest rates. See, if you know what the Fed is going to say before it says so, you can position yourself favorably the day before and not take the hits the other poor schlubs do. Schlubs would be those just trying to scrimp and limp along as they squirrel away shekels for their retirements.

Congress is demanding an investigation and clearly wants heads to roll. Meanwhile, the chair of the Federal Reserve is begging Congress to leave it alone and let them solve the problem. Here’s the problem with the Fed solving the problem. They are quick to poo-poo the allegations, calling the officials’ trading actions “pre-planed” so that they could not possibly cross any lines. If Fed officials are dabbling in individual stock trades it is impossible for them to defend themselves. Talking yourself blue in the face will not convince those following along at home that the powerful are not corruptly trading, using the policies they have developed to protect them from conflicts allegations and investigations.

The resignations were necessary and appropriate. Going forward, the Fed will need to take affirmative steps to remove those who are trading in individual stocks in their personal portfolios. It’s an Alfred E. Newman moment, “What me worry?” followed by, “You just don’t understand.” Sure don’t — because we understand conflicts. This is a “Don’t do it,” because disclosing the trades, which they did not do until discovered by reporters, would raise eyebrows and questions. Right there, that’s all you need to know about conflicts.

It only took the jurors 10 hours. Following their deliberations the jurors emerged with guilty verdicts for for John Wilson, a private-equity financier (conspiracy to commit bribery, conspiracy to commit fraud, and filing a false tax return). Gamal Abdelaziz, a former Wynn casino executive, was convicted of conspiracy to commit fraud and conspiracy to commit bribery. Mr. Wilson paid $1.5 million to have his son, Johnny, designated as a water-polo recruit. Johnny got in but quit the water-polo team after one year. Meanwhile, John, Sr. was busy trying to secure admissions to Harvard for his twin daughters, as sailors. However, his arrest got in the way. The twins had not yet finished high school when the whole Rick-Singer “side door” admission program was shut down by the Feds. There were 57 arrested, with 47 entering guilty pleas, and now two convictions. Expect some additional guilty pleas from the remaining hold-outs in the coming weeks.

Meanwhile, Felicity Huffman, who paid $15,000 to get a better SAT score for her daughter has served her 11-day sentence and will be back starring in her own ABC series. Lori Loughlin, she of “Full House” and the Hallmark Channel, paid $500,000 to get her daughters into USC. Ms. Loughlin has done her two months, paid a $150,000 fine, and will return to her series, “When Comes the Heart” on the Hallmark Channel. Her husband, however must finish a five-month sentence and ante up $250,000. No word on whether his clothing designs will return to Target.

Douglas Hodge, a hedge-fund guy, paid a chunk of change to get four of his seven children into the Ivy League biggies. He was working on #5’s admission when the scam was shut down. He got 9 months and a $750,000 fine after entering a guilty plea.

The parents said they did all this to give their kids the very best. No, they didn’t. They did it for bragging rights. Some of their kids actually believed that they got a 32 on their ACTs. 22 was their real score. No bragging rights with scores like that, nor any admissions to the elite schools. Like the manipulated earnings of the companies they ran and financed, nothing was real, but what you are bragging about sure does look good on paper.

Ozy Media showed up on the Barometer’s radar after a bizarre story appeared on September 30, 2021. Ozy Media has been around on the Internet since 2013. Ozy had the usual podcasts, interviews, and some YouTube documentaries. The story was that an Ozy Media executive, Samir Rao (co-founder and COO) posed as a YouTube executive during a conference call with Goldman Sachs. Goldman was considering a $40-million investment in the company. The role of the YouTube executive, fake though he may have been, was to verify Ozy’s presence and hits on social media.

Goldman thought the executive’s voice sounded digitally altered and, showing surprisingly good judgment, opted not to go with an investment in the company. Tip to Goldman — Go with Zoom meetings rather than just a phone call. You can match the face with online photos (hopefully).

When the story of the stolen-identity-to-dupe-investors scam surfaced, Ozy lost Katty Kay, one of its podcasters and a three-decade BBC journalist. She referred to the scam as “serous and deeply troubling.” Ozy media attributed the behavior of Mr. Rao to a “mental health crisis.” Following the call, Mr. Rao took some time off. Ozy”s CEO and the other co-founder, Carlos Watson, said he was “proud” to have “stood by” Mr. Rao, who has since returned to the office.

Mr. Watson pulled out as host of the News and Documentary Emmy Awards show for fear of distraction due to the Ozy issues. A major investor pulled out of Ozy and the Ozy board commissioned an investigation. Ozy closed its doors (pulled the plug? crashed its site?) on October 1. Quite a fall, but faking an identity to rope in an investment banker may not be the most effective business strategy. But, if failure is the goal, there was no better nor faster formula for self-destruction.

The Wall Street Journal did parties in federal court as well as ethics professors a magnificent service. Through what must have been painful research, reporters James V. Grimaldi, Coulter, Jones, and Joe Palazzolo combed through federal judges’ financial disclosure statements and then compared the judges’ case dockets with the companies listed in their disclosures. As it turns out, 138 judges had conflicts, i.e., they or their family owned (or in some cases traded in) the stock of companies that had cases before the judges. “Federal Judges Heard Cases Despite a Financial Interest,” Wall Street Journal, September 29, 2021, p. A1.

These conflicts were not close calls. The rule is, from 1792 to the present, federal judges may not preside over cases in which they stand to benefit. For example, one federal judge from New Jersey, traded Wells Fargo stock while presiding over a case in which Wells Fargo was the defendant in a foreclosure recovery case brought by the homeowner who had lost his property. Judge Brian Martinotti granted Wells Fargo’s motion to dismiss in July 2019, denied the plaintiff’s motion for reconsideration in March 2020, and did not disclose his Wells Fargo stock trades until after the Wall Street Journal notified him of the conflict on August 11, 2021. One federal judge in Texas presided over 138 cases in which he or his family owned stock in one of the parties. He wins the prize for the most failures to either check or disclose his stock holdings.

If any of these judges have ever worked in a law firm, they know the drill. You never take on a new client without going through the firm’s records to check for conflicts. Federal judges have clerks, staff, law clerks, and data bases. Their annual financial disclosure forms list all their stock holdings and those of their family members. If you have those companies on just a simple Word chart or Excel spreadsheet, it will take 30 seconds to type in a party’s name and see if it matches anything in your holdings.

The judges have their rationalizations: “I have preferred to stay unknowledgeable about it,” “A judge has to be on her toes, and obviously I was not,” and one humble judge, “I just blew it. I regret any question I’ve created or appearance of impropriety or a conflict of interest.” The judge needs help with sentence structure as well as conflicts. There was a grateful judge, “I dropped the ball. Thank you for helping me stay on my toes the way I’m supposed to.” FYI — Ballerina postures are not necessary — just check the list.

Judges checking for share ownership in the parties before them is not difficult nor should it slip from their minds. It is possible to not have the memory capacity to recall all of your stock holdings. Hence, the list and search functions. The funny thing is that federal judges are the ones throwing the book at companies such as McKinsey & Company for their failures to disclose their conflicts in federal judicial matters such as bankruptcy. Funnily enough, McKinsey offered the same defenses as the judges, “Who knew?”

That “Who knew?” is one of two possible answers when someone is caught with an ethical/legal lapse. The “I was stupid defense,” which is “Who knew?” is one CEOs use all the time. Even if they did actually know they roll the dice with a “Prove it” sort of attitude. The other option is to confess incompetence. There was a split decision in the courts on which one each judge opted to cling to as a defense.

The sad part is that the parties to these cases are lost in the headline hoopla. The judges could talk themselves blue explaining that their share ownership “would never affect their decisions.” That’s because federal judges are above all conflicts. They have super-human powers to resist those kinds of temptations. Doctors taking money from pharmas for favorable-results research make the same argument and assume the same saintly posture. Politicians, well, they are above all others. Just donate, sell me land at a discount, remodel my house, and/or buy my son’s paintings and fuhgeddaboudit! In a world of conflicts only those who lose out because of them have the skill to spot them.

A former Mylan Vice President of global operations information technology received some very valuable, nonpublic information from Mylan’s former chief information officer. I guess the CIO would be the guy with the most info about Mylan. The VP used the information (advance notice of drug approvals) to trade in stock options in Mylan. Too clever by half, the VP tried to conceal the transactions by making them overseas in Indian rupees.

However, the Securities Exchange Commission is into analytics. That is, they watch trading patterns and then match those patterns with releases of information. Once you have that information charted together, nailing the culprits is not difficult. The VP entered a guilty plea. The SEC’s investigation is continuing.The CIO was not named in the indictment.

As near as we can figure, it all began on September 1 when a TikTok user posted a video of a box of disposable masks he had stolen from his high school. The hashtag was “absolutely devious lick.” The youths responded to the clarion cry. Stolen hand sanitizer followed. Then the soap dispensers went. After the thefts from the schools, the young people turned to vandalizing bathrooms in their schools. The families of those who were caught had to pay for the damage. There was a TikTok response to a video of a school administrator “finger-wagging.” The response? “Don’t get caught. But keep doing it, cause it’s even funnier now.” There are 7.2 million views on these videos of damage.

Teenagers must teenage. And after over a year of lock-downs, their rebelliousness is not surprising. Jolly antics are one thing — just a part of growing up. Theft and vandalism cross the line. Where are the social media censors when you need them?

Boris Johnson, at the United Nations. Mr. Johnson surrounded this pithy insight with the following, “We still cling with parts of our mind to the infantile belief that the world was made for our pleasure. And we combine this narcissism with an assumption of our own immortality. We believe that someone else will clear up the mess, because that is what someone else has always done.”

From the amount of debt to the amount of corruption to the number of young people adrift and lost, the days of accountability and cost are here. The quote seems odd coming from the mouth of a man with six children, two divorces, and a daughter from an extramarital relationship. Perhaps the thoughts come from his inevitable realization about the cost to others of his behavior and choices. We never lose hope for reform; it really is a timing issue. Is there enough time before adult adolescence ends to change and repair?

Marci Palatella, the CEO of liquor distribution company in California, entered a guilty plea to conspiracy to commit honest services fraud. Ms. Palatella, who is married to former 49ers player, Lou Palatella, was sentenced to six weeks in jail, a $250,000 fine, two years probation, and 500 hours of community service. According to the indictment, Ms. Palatella worked with William “Rick” Singer to funnel $500,000 to Mr. Singer and others to have her son admitted to USC as a football recruit. Her son, however, does not play football. There are five more parents scheduled to go to trial.

The jail sentences have been light and the fines hefty in these pay-not-to-play-but-stil-get-into-college-Rick-Singer plans. For all of us who have crossed a line with homework “help,” the cases are a stark reminder of the reality of the slippery slope. Truth percolates, and the fall-out is great.

Headline New York Times August 27, 2021. The new chaplain is in charge of coordinating the efforts of 40 faith leaders on campus. He is the author of a book, “Good Without God.” Greg Epstein, the new chief chaplain says, “There is a rising group of people who no longer identify with any religious tradition but still experience a real need for conversation and support around what it means to be a good human and live an ethical life.” The good chaplain is correct. However, the piece that is missing is whether the rising group still believes in God, despite their non-embrace of organized religion. Keeping the lines of communication open is important to Chaplain Epstein. Some folks believe there is an important line of communication an atheist might not understand because the label “atheist” necessarily means the denial of the existence of God. Those who pray may have some thoughts on that and might, in the challenging university years, want some perspective on monotheism. There is something counterintuitive here. Perhaps the open-minded humanists can shed some light.

You never hear of anyone being expelled for cheating on a philosophy exam. Perhaps philosophy students are more mellow. Perhaps the questions on physics exams require more precision than the answer to, “If a tree falls in a forest . . . “. The West Point cheating scandals involved exams in the sciences. Medical school cheating involves memorizing body parts. However, all of these scandals arose because of exams taken online. When will colleges and universities learn that there is no way to set up an online exam that closes all cheating loopholes? Whatever loopholes we faculty close will be short-circuited by the genius of today’s students. If we could just put their knowledge and skills to work in a positive way, i.e., something beyond facilitating exam cheating.

Nonetheless, the U.S. Naval Academy does not mess around: 18 were expelled and 82 entered a five-month remediation program for violation of the academy’s “Honor Concept.” Four were found not guilty of any violations and one is awaiting final determination. That’s 105 midshipmen out of a class of 653. The percentage of the class cheating is troublesome. Judging from general undergraduate statistics on cheating however, the academy may not have caught them all. General percentages range from 50-75% of undergrads confessing to some form of cheating on course work. Another possibility is that those in the Naval Academy believe in their honor code. We can hope. In the meantime, physics, engineering, and medical school exams are hotbeds of temptation.

News article headline, New York Times, August 20, 2021, p. B5

That’s a combination of words we might not have anticipated before we entered the Twilight Zone on so many levels. In July, Frontier Airlines employees had duct-taped a rowdy passenger to his seat following his rather wild behavior in an inebriated state. United went on to tell its flight attendants that “there are designated items onboard that may be used in difficult situations.” The “other items” were not specified.

United does not understand the duct-tapers’ mantra: Serious issues and serious times call for immediate solutions. Nothing works like duct tape.

To clarify — the tape available on flights is not “duct tape”; it is “restraint tape,” and it is not silver. Pardon us! We just want the rowdies reined in. And hopefully whilst keeping the aircraft en route.

Wall Street Journal editorial writer, Andy Kessler, wrote a column that appeared on August 9, 2021 entitled, “To Lie Is Human.” He began the column by confessing that as he and his family visited Lake Louise, Alberta he did the following:

1. He told his son to lie about his age when they were going to go horseback riding. His son was 6 and turning 7 that day (his birthday). The minimum age was 9. His son lied about his age, saying he was 8 and turning 9 that day, and got his horseback ride for his birthday.
2. Later that day they went to ride the ski lift. The fare is $35 unless you are five or under. Then the ride is free. He told his son to tell the lift operator that he was 5 — the son complied.

Mr. Kessler seemed entertained by the thought that his son was ages 5, 6, 7, 8, and 9 all in one day. Mr. Kessler used it as an example of how children are not always refreshingly honest. He took pride in believing he was training his son for a career in politics.

What Mr. Kessler may not know is that children’s attitudes about ethics and honesty are formulated at a very early age by, you guessed it, the example of their parents. What Mr. Kessler’s son saw was that it’s okay to lie when you really want to do something or when you want to save $35. Children do not forget these incidents, precisely because they were placed in an ethical dilemma: Do I do what dad says or do I do what I have learned is the right thing to do?

Complicity of adults in the bad behaviors of others has resulted in everything from ongoing sexual harassment to the slaughter of innocents. What Mr. Kessler confessed to was training his son to be complicit under a standard of moral relativism. He should not be surprised if his son’s actions as a teen and adult mirror his lessons taught alongside the glistening and reflective water of Lake Louise.