“8 Years of Rust Show as Senate Ethics Committee Finally Has Meeting”

New York Times, June 16, 2017, p. A24. Now there’s a headline. The headline refers to the ethics committee of the New York State Assembly. And it only took 12 senators being convicted of crimes and a host of various and sundry scandals that make Chicago look angelic to dust off the cobwebs.

The committee is off to a good start. Enough senators on the committee voted to end stipend payments (“Lulus” as they are called and have been paid to senators of the opposite party in order to obtain their support for power retention. They are bonuses the senators receive for, well, who knows?). Even Charles Rangel, he of tax questions and rent issues, has decried lulus as immoral. However, one of the senators on ethics committee came back and said he needed to change his vote. Rusty, indeed! Rusty presumes that there were once skills in place. The Barometer is not so sure.

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Why Goldman Sachs Fund Managers Scooped Up Venezuelan Bonds Without Checking First

Goldman Sachs fund managers did not hesitate when a brokerage firm offered to sell them Venezuelan bonds for pennies on the dollar. Why not hop in and help fund a government that has left its people without food, toilet paper, and life’s basics? It never occurred to them that a decision to buy $2.8 Venezuelan bonds might result in some blowback and should have probably gone through the firm’s standards committee. That committee was created post-2008 so that senior management could take a look at investments that were shaky financially or socially. Goldman CEO, Lloyd Blankfein, trains employees on the importance of Goldman’s public perception, “Everyone has to have big eyes, big ears, know what’s going on around them, and be policeman for the organization.. At the end of the day, we only have one reputation.”

All good platitudes, especially the addition of the worn phrase, “at the end of the day.” Repeat them all you can and all you want, but the phrases cannot compete with what you reward and pay structure. A money manager cannot be swayed by such when he is offered bonds for pennies on the dollar. It’s what money managers do under current incentive and performance standards. Employees sit through the Blankfein lectures on reputation being the end-all and the cynical money managers do what they do best — buy low, cash in high. The training only makes them more cynical, which is why it did not dawn on them to seek approval. They buy cheap; it’s what they do. Goldman has a long way to go before its culture gives money managers the freedom to question reputational soundness of a bond investment in some bad actors. Set up standards committees, let your CEO do the training. ‘Tis all for naught if the culture is driven by results.

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Curley, Schultz, and Spanier of Penn State Sentenced to Prison

For endangering the welfare of a child, the former president, a senior vice president, and athletic director were sentenced by a Pennsylvania judge to a minimum of two months in prison, with varying additional confinement time among the three, fines, and probation for two years. A jury convicted the men of failing to report to law enforcement officials that they had received a report that former assistant football coach, Jerry Sandusky, had molested a child in the shower. The three had offered a defense that they were not told that the episode was “overtly sexual.”

Hmmm. An assistant coach naked with a young boy in the football program’s showers should have at least raised a risk management issue and additional action. As a result of their inaction, Mr. Sandusky moved along assaulting other minor boys, and was convicted in 2012 of 65 counts of sexual abuse.
her Penn State casep — long before Judge Boccabella uttered the same phrase in handing down the sentences. To quote Judge Boccabella, “Why no one made a phone call to police is beyond me.”

The Barometer, having studied these cases for years understands why three bright people who have been called good people made such a decision. They framed the issue the way that they did because they existed in a culture that rewarded them for preserving Penn State’s football program and its reputation. They framed the issue within their sense of loyalty to an assistant coach and a desire to not cause trouble for Mr. Sandusky (their e-mails referred to their decision to just talk with him as the “humane” thing to do). The three men framed the issue as doing their job to protect Penn State and being noble(humane) in their treatment of a friend. Poor framing leads to really bad decisions, and this one was a doozy. Begin any decision with a basic question, “Is what we’re about to do legal?” If the answer is no, stop there! There just isn’t much room for conscientious objection when it comes to reporting statutes. If a child has been hurt, molested, or injured, you report. They did not, and thereby defeated the very purpose of child-reporting statutes — other children became victims.

Mr. Schultz said at his sentencing, “It sickens me to think that I might have played a part in children’s suffering.” Mr. Spanier said, “I deeply regret that I did not intervene far more carefully.” Truth be told, Mr. Spanier did not intervene at all. And Mr. Schultz didn’t just play a part — he enabled the molestation of young boys because he skirted his legal duty. Thus we end this tale of woe with 4 people in jail, victims sentenced to physical harm, emotional trauma, and a lifetime of psychological burdens, and a school that will carry some tarnish for decades to come. In the words of Shakespeare, “All are punished.”

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The key to the bottom line is the top line . . . if we had to select only one goal, it would be revenue growth.

From Wells Fargo’s mission statement in 2012. They did indeed get the revenue growth — on the retail side, Wells sold its retail customers an average of 5.9 products each. Wells led the industry in that per customer figure. However, given what happened at the bank, it is not clear that all Wells customers were aware that they had purchased 5.9 products. One of the drawbacks to cross-selling.

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Wells Fargo Has a Plan for Luring Brokers: Bonuses Based on Performance — Sound Familiar?

In the aftermath of the fake accounts scandal at Wells Fargo, Wells Fargo lost 429 (3%) of its its brokers from its brokerage arm. As its rivals are cutting back on signing bonuses for the long time industry practice of poaching through those bonuses, Wells Fargo is sweetening the pot it offers brokers. When brokers leave one bank, they are likely to bring about 80% of their clients with them. That’s a nice slice of revenue increase. Wells is offering a recruitment bonus of as much as three times the annual revenue the brokers generate in their first year. The Department of Labor had issued all banks warnings that the three times amount being paid would result in problems with brokers acting in the best interests of their clients. So, Wells structured their three-times bonus (much higher than the 2.5 times the other industry players had gone with to avoid the DOL conflict) in the form of loans. The poached brokers are paid in the form of loans forgiven, the longer the broker stays at Wells. To get out from under the loans, the brokers must stay and continue to produce the revenue figure agreed upon at their signings. Okay, so more pressure, higher incentives, and nowhere to go with the loan handcuffs. Sounds as if Wells learned its lesson from the 2.3 million fake accounts created by the now-terminated 5,300 employees. Be careful what and how you incentivize. You will get the numbers; they just might not be real.

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What We Can Learn from Citigroup’s Money-Laundering Settlement

Citigroup has agreed to pay $97.4 million to end the inquiry of the U.S. Justice Department into the money-laundering that was occurring through the bank’s facilities at Banamex. The bank has already paid $140 million to FDIC as a fine for its oversight failures on Banamex. There will be no criminal charges, Banamex will be closed by June 30th, and Citigroup walks away with many lessons for prevention in the future

Lesson 1 Investigate your own flags.
From 2007-2012, Banamex USA generated 18,000 internal alerts on suspicious transactions. For some perspective, that was 18,000 alerts out of 30 million fund transfers to Mexico. However, Citigroup only conducted 10 investigations.
Lesson 2 Check your staffing levels.
Despite the volume of transactions, there were only two employees assigned to review the Banamex transactions.
Lesson 3 Listen to employees.
Employees were raising questions about suspicious transactions, but the Bank took no action and no additional staff members were added.
Lesson 4 Believe your own metrics.
Most of these transfers are transfer to family members and involve only one or two regular transfers. However, data analysis showed that one person in Mexico received 1,400 transfers from 950 senders who lived across 40 different states. The numbers and sources were screaming, “Intervention!”
Granted the $97 million in fines pales in comparison to the billions made on the transactions, but the operation is now shut down. Sometimes behaviors, while profitable, kill the golden goose.

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“I think I can read between the lines more than a lot of people on these issues.”

Jon Corzine, former Goldman chair, former U.S. senator, former governor of New Jersey, former head of MF Global, a company that was the second largest bankruptcy in history (only Lehman was bigger)following a “temporary” loss of $1 billion I customer funds. Yes, he read the markets so well when he had MF invest in the funds of Greece, Spain, Italy, Portugal. Mr. Corzine is starting a new hedge fund. He’s looking for investors. The man was not wearing a seat belt when his driver, going 91 mph, lost control and crashed the then-Governor Corzine into a coma. Mr. Corzine then crashed MF Global. Not sure his hedge fund is a sure bet. How many times do Wall Streeters get to crash before we say, “Enough!” ? Here’s a thought: Would you buy a used car from this man?

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“Taking into account both the circumstances of this matter and his otherwise exemplary record since joining Barclays, including contributing significantly to improvements in Barclays culture and controls, Jes continues to have the Board’s unanimous confidence and it will support his re-appointment at Barclays Annual General Meeting on May 10, 2017.”

John McFarlane, chairman of Barclay’s Bank on the Board’s position on retaining James E. Staley (Jes) as the bank’s third CEO since 2012, when the bank’s LIBOR rate-fixing scandal became public. Mr. Staley tried to obtain the identity of an employee-whistleblower. No word on what he planned to do once he had the employee’s identity. Recall that one of the problems with the bank was the failure of anyone to report the long running rate-fixing issues. The retention of Mr. Staley should go a long way in encouraging employees to report issues. Exemplary.

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“It’s one of the toughest of the toughest jobs in city government, and all people want to talk about is the God-forsaken cars.”

New York City Mayor Bill de Blasio defending his embattled jails chief. Actually, Mayor, the car issue arose because the guy spent 90 days out of the state last year — the car was just how he got there. Bad judgment is bad judgment, and there is plenty more on the table besides the car. Eavesdropping on investigators. Treatment of prisoners. The misuse of the car is something we all understand from our own workplaces. You know you can’t do it. And we would all be fired for that offense alone. Perhaps we and our employers are so concerned is that there is liability exposure when employees take off on unauthorized trips. Check with the risk department on that one.

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They Told Me I Could Take My City-Issued Vehicle to Maine

Joseph Ponte, embattled commissioner of the New York City Department of Corrections, insists that he was told by city officials that it was A-Okay for him to drive his city-issued vehicle out of state on personal trips. Mr. Ponte was MIA for 90 days last year. The good news is that we now know where he was when not at work — the coast of Maine. The bad news is that the officials deny ever telling Mr. Ponte that such use was permissible. Mr. Ponte says that his driver also can verify that authorization. The bad news is that driver cannot be found. The good news is that the magnificence of the management skills of New York City government continues to dazzle us.

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How About That Rikers Island?

We’re talking abuse of inmates by guards and inmates, misuse of official cars, and the jail monitor allegedly spying on the Corrections Department of Investigations staff as they attempted to figure out what was going on at the Big House. A scathing report was just issued, and now the Department of Investigation has added a letter to Mayor Bill de Blasio that alleges rules violations by the prison monitor, i.e., listening into interviews of inmate by the Department of Investigation. Apparently, according to the letter, the monitor had joined the other side. Although, which side that would be remains unclear — the staff? the inmates? both? Or were they one and the same? Heck of a culture going on there. Classic sandbox — someone from the outside points out the problems and those from within the sandbox undermine the outsider and threaten the finks. Is there a management bone in any one’s body in New York government at any level?

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Wells Fargo Independent 110-Page Report Has a Footnote on Whistle-Blowers

Wacky, probably some fraudulent, sales tactics were pervasive at Wells Fargo. When you have to fire 5,300 employees in one fell swoop, you have a culture problem. Yet, following a high-falutin’ law firm independent investigation, and that report, to Well’s Fargo’s credit, has been released, the discussion of retaliation is found in Footnote 26 on p. 87 (of 110 pages). https://www08.wellsfargomedia.com/assets/pdf/about/investor-relations/presentations/2017/board-report.pdf. Read it and wonder:

Based on a limited review completed to date, Shearman & Sterling has not identified a pattern of retaliation against Community Bank employees who complained about sales pressure or practices. The review, which is ongoing, thus far has consisted of the following five steps. First, Wells Fargo’s outside counsel provided a spreadsheet listing 115 potential whistleblower cases identified by Wells Fargo’s HR legal team for the period 201116 (this included many different types of claims, e.g., sexual harassment). From that spreadsheet, ten case files (including legal documents, employee files, HR records, ICE records and case-related correspondence) from the period 2011-2013 were identified for review because the spreadsheet description suggested those cases could be related to sales practice misconduct. The review of those ten files did not reveal any documentary evidence suggesting purposeful retaliation in those cases. Second, based on a review of these ten case files, media reports, the Shearman & Sterling document repository and a list provided by Wells Fargo’s legal department of publicly-disclosed whistleblowers, counsel identified 11 former Wells Fargo employees to interview (only three of whom agreed to speak). Counsel also reviewed documents relevant to those 11 individuals located in Shearman & Sterling’s document repository. This inquiry did not identify evidence of retaliation. Third, Shearman & Sterling analyzed whistleblower and EthicsLine reports made to the A&E Committee going back to 2011, and identified nine incident descriptions as potentially implicating sales practice-related retaliation. Two of those incidents related to employees whose files were reviewed as part of the review described in the first step, above, and review of the other seven files has not been completed as of the date of this Report. Fourth, Wells Fargo’s outside employment counsel reviewed files (including ICE records, EthicsLine data, HR data and media reports) relating to 885 employees, consisting of employees who (i) called Wells Fargo’s EthicsLine between January 1, 2011 and October 5, 2016, identified themselves on the calls and were subject to a corrective action within 12 months of their call or (ii) during the month following the September 8, 2016 settlement announcement, claimed in media reports that Wells Fargo had retaliated against them for reporting sales misconduct or sales practices concerns. Shearman & Sterling is in the process of independently reviewing the following two sets of files reviewed by Wells Fargo’s outside employment counsel, in each case as supplemented by a search for relevant documents in its own document repository: (i) eight files identified by Wells Fargo’s employment counsel as raising “concerns,” and (ii) ten additional files of employees who were also among the 5,367 terminations referenced in the September 2016 settlements. Fifth, whistleblowers have been identified in the derivative complaints relating to sales practices filed by Wells Fargo shareholders. Shearman & Sterling determined that one of those did not involve a sales practice-related matter, and has reviewed the files related to two other publicly-identified whistleblowers as part of the review described in the first step above. Counsel is still in the process of reviewing the files relating to an additional four individuals.

Some advice for the Wells board of directors (who got by with a squeak at last week’s annual meeting):

1. Wells has a culture problem. It has an internal audit problem. It has a problem with to whistle-blower reports. It has a problem with what to do in a crisis of this magnitude. Quit running ads and commissioning investigations. See below.
2. Law firms do not investigate culture — they are looking for violations of the law. And it shows.
3. People generally do not create retaliation documentation. Stunningly, the law firm seems surprised to write, “We could not find a stitch of evidence.” Watch out, Holmes and Watson.
4. Most employees will not take a complaint through to action. Stunningly, again, internal audit did not follow up with the complaints to see what was what. Internal audit did not even catch the patterns on fake accounts. Talk to the people who left voluntarily. The Barometer’s son is one — he has a letter that he sent to headquarters explaining why he was resigning in 2012 from a Wells branch. Most informative.
5. Current employees at are not candid with a law firm. Investigations make most people nervous, particularly when they have witnessed colleagues dropping like flies — voluntarily or otherwise. And Wells has not indicated that it understands the issues. It is trying to survive a criminal investigation and it shows.
6. Read The Seven Signs of Ethical Collapse. It can help you understand the culture of fear and silence. Until you get that part of this crisis, you have relegated the real issues to footnotes.

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“This is a seismic cultural shift, when a corporation puts a woman’s rights above the bottom line.”

Wendy Walsh, former O’Reilly guest. However, in the case of Fox News, O’Reilly got the boot because the bottomline was being affected. O’Reilly advertisers pulled their ads from his program. You lose ad dollars, you fix it. Sometimes business interests and rights walk on the sale side of the street. The two are not always at war. And, the free market does work.

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“People getting accounts they didn’t sign up for? I don’t need an M.B.A. in finance to understand that’s wrong.”

Stephen Beck, founder of CG42, a strategy company, discussing Wells Fargo’s problems. Funny how this simple point eluded so many within the bank.

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