Nikola: Will Pay $125 Million Penalty to the SEC for False Claims

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.

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Jes Staley is Now Barclays’s Former CEO

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.

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38% of Consumers Admit to Copyright Infringement in Downloading Music

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

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O Tempora! O Mores! Bridge Players Are Cheating

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.

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“Fake It Until You Make It”

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.

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The Shameful FBI

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.

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“The N.F.L.’s Ugly Underbelly Exposed”

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.

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EX-NBA Players Submitted Fraudulent Health-Care Claims for $2.5 Million

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.

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Federal Reserve Board Member and Conflicts

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.

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Two Parents Convicted in the College Bribery Scandal

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.

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Ozy Media: Kaput in Two Days

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.

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Federal Judges and Conflicts: They Are Not So Good at Conflicts Checks

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.

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When the Vice President of Technology and the Chief Information Officer Collude

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.

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The Kids Are Back in School . . . and Stealing, Vandalizing, and Hashtagging

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?

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