The Ethical Barometer

Gina Champion-Cain, at her sentencing hearing for running a Ponzi scheme that had bilked $400 million from investors who were her friends and business connections. Ms. Champion-Cain was sentenced to 15 years in federal prison, more than the prosecution had recommended. U.S. District Judge Larry Burns said that because the scam went on for seven years and, “This wasn’t just strangers hoping to get rich. This was a level of deceit and betrayal I wasn’t fully aware of.”

Ms. Champion-Cain got the money for the Ponzi scene over a seven-year period. Her business plan was to loan money at high rates to businesses seeking California liquor licenses. Ms. Champion-Cain did own a chain of restaurants (Patio) and had a network of vacation rental homes. However, dreams turned to dust on the liquor-license-loans, despite the alliterative quality of the plan. Most of the funds invested instead went to luxury homes for Ms. Champion-Can, furs, jewelry, and box seats at Chargers and Padres games.

Like all Ponzi masterminds, she overestimated her ability to manage the situation and underestimated the probability that the truth would come out.Truth’s clock always moves faster than the Ponzi wonder kids. You might as well tell the truth in business about your business. Investors find out anyway and you get jail time for fraud. Truth just percolates.

The New York Times did some investigative journalism and found that the completion of New York Governor Andrew Cuomo’s book came at an awkward time. Whilst the Guv had staff members running about typing, editing, and working with his publishers, other staff members were managing a crisis of numbers. It seems the number of COVID-19 deaths in nursing homes that had been reported did not reflect the reality of the tragedy. Mr. Cuomo’s executive order that required nursing homes to admit COVID patients who had been released from hospitals meant that the raging virus was introduced into its most vulnerable population.

The timing of communications by senior staff members with legislators in an attempt to explain the discrepancies coincides with the critical timeline on the book’s completion and its publication date. Jesse McKinley, Danny Hakim, and Alexandra Alter, “Celebratory Memoir by Cuomo Undercut by Covid Data Report,” New York Times, April 1, 2021, p. A1.

Beyond the ethical problems of using public servants for his private external contracts, Mr. Cuomo is now also the “MeToo” Guv with allegations of sexual harassment percolating painfully into the news. Then there was the favoritism shown the Cuomo family and friends for COVID testing back when testing first began and kits were in short supply. Little wonder that Crown Publishing has stopped printing the books. Federal investigations, pending impeachments, and sexual harassment allegations do put a damper on book sales. American Crisis: Leadership Lessons From the Covid-19 Pandemic has sold 48,000 copies. The title smacks of parody.

Read the book — Mr. Cuomo’s lectures and insights as well as his fault-finding in other leaders would be humorous if so many New Yorkers had not died in nursing homes or perished due to his lack of prior planning and minimal skills in execution. Perhaps the book is actually a tragedy. Or perhaps it should be a required text in every course on leadership — what not to do.

So read the Goldman Sachs statement given to clients to provide assurance of integrity in the firm’s operations. The boilerplate language of empty promises also included assurances of, “We have extensive procedures and controls that are designed to identify and address conflicts of interest.”

However, there is a slight problem with those promises and claims and how Goldman actually behaved. Goldman put together a bond deal with Paulson & Co, a hedge fund. Paulson helped to pick the mortgages being bundled. Paulson & Co was positioning itself short on the bonds. In plain English, Paulson & Co & Goldman put dog mortgages in the bundles knowing that they would default. Voila! They make a billion on the deal and the Arkansas Teacher Retirement System and other investors left holding the worthless bonds. Paulson netted about $1 billion on the deal. The mortgagors defaulted and the bonds tanked.

Now there is a class-action suit, led by the teachers, that is based on Goldman’s promises of integrity. The defense? “Shucks, folks, that’s just boilerplate. It don’t mean nuthin’.” They are right about that. However, the U.S. Supreme Court has taken up the case and will decide whether promises about integrity and protecting clients from conflicts can be the foundation for class-action investor suits for losses. The court was struggling. Do false statements about integrity and managing conflicts count in the formation of the investor relationship? Not in the Goldman book.

Here’s a safety tip — when a company uses “integrity” instead of ethics, it is a trick. You can have integrity if you never follow the speed limit or curb your dog. You never fail in being a scofflaw. Whether you are ethical in doing so is a different question.

Pitchers’ use of sticky substances on baseballs is a longstanding tradition of the game. Mind you, such stickiness is not legal under the rules of the game, but teams and the commissioner look the other way. The teams do because “everyone does it.” MLB does it because, well, look what they let those Astros do with nary a sanction. Oh, sometimes they call foul. For example, in 2014, Yankee Michael Pineda went to the mound with pine tar on his neck. You just can’t be that obvious. Jared Diamond, “MLB Plans to Crack Down on Ball Doctoring.” Wall Street Journal, March 29, 2021, A14.

The physics of pine tar on baseballs goes like this. Trevor Bauer’s revolutions per minute (RPM) were 2,776 in 2020. In 2019, his RPM was 2,412. In 2018, he was at 2,322. Appearing on HBO’s Real Sports, Mr. Bauer said that he could add 400 RPM with pine tar. He also said that pine tar has a greater effect on baseball games than steroids. It’s a pot and kettle kind of deal with the pot confessing to Bryant Gumbel whilst faulting all the kettles on the mounds.

The Los Angeles Angels made the mistake of firing a clubhouse attendant for allegedly giving pine tar and rosin to players. The attendant filed suit and that suit is offering all the sordid details. Hell hath no fury like locker-room staff sacked for helping players do what they would do anyway.

MLB is realizing that it has a sticky wicket. MLB never plays well there. They just walk the player and the clubs.

Vilma Kari, a 65-year-old woman who had come to the United States from the Philippines, was on the streets of New York near Times Square. In the cold, cruel light of day, and unprovoked, a man kicked her in the stomach. She fell to the ground and her assailant then kicked her three times in the head. He walked away with this parting shot, “You don’t belong here.” Ms. Kari is so tiny that her attacker seemed to be twice her size.

Shocking as that might be, three staff members in the lobby of one of Manhattan’s highfalutin apartment buildings stood there and watched the attack but did nothing to help. As Ms. Kari struggled to stand, one of them did take action. He closed the lobby door.

As one resident of the building commented after seeing the video of the attack that is playing in the building in order to obtain help in identifying the assailant, “I’m not asking them to fight. But when you see someone on the ground who clearly needs help, as a human, our instinct isn’t to close the door.” Nicole Hong, Juliana Kim, Ali Watkins, and Ashley Southall, “Asian Woman Attacked in City as Others Watch,” New York Times, March 31, 2021, p. A1.

Actually, the three men could have stopped one or two of the kicks to the head. Better yet, how about just yelling, “This is all on video!” Noise and screeching deters everything from javelina to wolves to coyotes. In other words aggressive animals in all regions can be frightened away with noise. A basketball referee’s whistle also works very well. Not in amateur basketball games, but with aggressive animals. The Barometer suggests that we all arm ourselves with this weapon for the wilds.

The fabric of humanity is raveling. Ms. Kari remains in the hospital with a fractured pelvis and other injuries. Every man’s failure to act diminishes us. “Never send to know for whom the bell tolls . . . ” They’re coming for all of us.

The 1.5-minute video is difficult to watch. Two teens girls, ages 13 and 15, confronted Uber Eats driver, Mohammad Anwar, 66, while this humble Pakistani immigrant was trying to eke out a living working for a company run by billionaires. Mr. Anwar resisted as the teens tasered him. They managed to take the car, with Mr. Anwar hanging onto the driver’s door. Recklessly careening, the teens crashed the vehicle. Mr. Anwar was crushed by the driver’s door when the teens struck a pole. The vehicle then overturned crushing Mr. Anwar on the sidewalk. The two teens ran away. However, one returned, distraught and yelling repeatedly, “My cellphone is in that car,” pointing to the upside-down vehicle next to Mr. Anwar.

The teens had just engaged in a series of events that resulted in the murder of Mr. Anwar and the primary concern was retrieving a cellphone, something that would required stepping over the body of a man whose life they had taken.

How do we have such detail? Why, bystanders filmed this horror but did not step in to help Mr. Anwar or stop the fleeing teen girls. The video is not for the fainthearted. Indeed, the video itself is a documentary on how far we have slipped, nay jumped, into an “every man, woman, child for themselves” society.

Today a Wall Street Journal reporter documented how smugglers tossed a six-month-old baby into the waters of the Rio Grande because border agents were approaching. The logic behind their attempted infanticide was that the agents would try to save the baby, thereby giving them time to escape. The inhumanity at the border is suspected, but not addressed. Photos of conditions escape the media lockdown on coverage, and we are, of course, “shocked, shocked,” but do nothing.

We are back to the days of Kitty Genovese, a young woman murdered as tenants in an apartment complex heard and watched the assault but did nothing. Many scholars have argued that the bystander effect that arose in the Kitty Genovese murder could never happen again. We are different now, they maintain. We are different. We are worse. Not only do we not step in to help, we step back and record the events, hoping for 5.5 million views of our work documenting slaughter and inhumanity Mr. Anwar, a husband, a father, a grandfather, an uncle, a hard-working immigrant is dead. The senseless acts of two teens killed him. Not to worry — it is all on YouTube. No word yet on what happened to the cell phone.

What manner of people are we? Beyond what is described here, the coverage of the teen’s grief over her cellphone is missing from most of the stories covering this senseless tragedy. Oh, the society we have created. Missing a text message is the priority, not the missing life.

It was a recipe for disaster. The U.S. Centers for Medicare and Medicaid came up with a system for rating nursing homes. Mistake one: The ratings were based on data provided by the nursing homes themselves. The first thing nursing homes did was inflate their staffing levels. Counting staff members who were on vacation, staff members working multiple shifts, and on and on. The Centers caught on in 2018 and required the nursing homes and required the additional submission of wage and tax records so that the reality of who was working could be compared with the fantasy staffing levels submitted by the nursing homes.

Reports of injuries were greatly minimized so that their patient injury rates looked batter. Infection rate were also minimized. The data were just not accurate.

Other problems — homes were notified in advance of inspections.

Add to all of this the five-star rating systems that the homes pursued, creatively and otherwise. A five-star rating meant more money per patient for the nursing home directly from the federal government.

Could we just put Prince or Duke Harry and Duchess or Princess Meghan and Dr. Fauci in a room together with Oprah and just end the agony of seeing stories about all of them no matter where we turn? Sort of a WWW match of disgruntled narcissists. The only other solution would be to have all four work in a homeless shelter for a week, sans media coverage, so that perhaps they might develop the compassion for and understanding of what it is like to live without income, shelter, education, medical care, and, perhaps most importantly, media attention.

We are sad for all of them and weary of their whining.

The Biden quasi-domesticated dog, Dr. Major Biden, has ben sent packing. Following a break in his master’s foot and a “minor injury” to a staff member at an undisclosed location, the locals had had enough. Someone was bitten. Every president needs a friend in Washington. As the humorous saying goes, that solo friend is a dog. Dr. Major Biden has taken the bite out of that old saw.

A PR firm owner noticed a vanity license plate of “MENSCH1” on a Cadillac Esplanade. Curious about the man behind the vanity plates and the fancy car, he left a note. The owner of the vanity-plated Cadillac responded. The owner was a resident manager at a 52-unit apartment building. He explained that he offered his plumbing, carpentry, plastering, and electrical work skills to offer services to the tenants.

His side hustle of work for the tenants here and there ripened into a business. A tenant suggested that he used the names “Mensch Reliable Contracting.” He did, and then got the plates. Alas, just “MENSCH” was already taken, so he added the number one and there was his advertising.

“Mensch” is Jewish term for a kind and considerate person who can be relied upon for help without expectation of payment. In the Wall Street Journal article praising Mensch1 no one seemed to see the irony or conflicts in a situation in which a building manager had built a business from his building owner’s management office and all for tenants he was supposed to be serving. Somehow part of the mensch definition is missing. Vanity, vanity, all is vanity.

Allan Ripp, “A Humble Mensch With Vanity Plates,” Wall Street Journal, March 3, 2021, p. A15.

Congressman Steven M. Palazzo (R-Mississippi) made the following expenditures from his campaign funds on his “River House”

1. $3,000 per month rent to use the home as his campaign headquarters
2. $11,000 for utilities
3. $6,300 for landscaping
4. $1,500 for plumbing
5. $1,300 for heating and air conditioning fixes
6. $960 for a security system
7. $690 for cleaning
8. $200 for pest control

The property was appraised at $1,175,000 in 2017 and sold for $485,000 in 2019.

Representative Palazzo’s attorney issued a statement saying that the congressman “acted in good faith to comply with Federal Election Commission rules.” The statement added that any expenses related to the River House that were paid by the campaign were “allowable campaign expenses and were in compliance with all rules and applicable laws.” So there.

Perhaps so, but the ethics questions, particularly from the perspective of those pesky stakeholders (campaign donors) are quite a different story.

The inspector general for the Department of Transportation released a report last week that raised questions about the then-Secretary of Transportation using her office to advance her family’s business in China.

When then-Secretary Chao proposed allowing family members who run the Foremost Shipping Company in China to scheduled events in China, red flags went up all around the agency. Ethics counsel advised that it would be inappropriate for Secretary Chao to involve family members in her public events because it would give Foremost publicity and a leg up on competitors. Secretary Chao could involve family members if she attended events as a private citizen but could not then use DOT staff to make arrangements for such visits.

The actions were referred to a local U.S. Attorney for prosecution, but the case was declined. So, by a hair, Dr. Chao escaped a sticky wicket. That she had to ask ethics counsel for an opinion is the scary part. Government officials cannot use their positions to advance the business or reputation of companies in which they have an interest.

You can read the full report here: https://www.oig.dot.gov/sites/default/files/DOT%20OIG%20Letter%20to%20Chairman%20Peter%20DeFazio_2021-03-02.pdf

The prosecution in the fraud case against former Theranos CEO, Elizabeth Holmes, she who once dressed like Steve Jobs, and her COO, is adding evidence as the trial proceeds. The latest filing covers the testimony of the former director of Theranos’s clinical lab.

Dr. Kingshuk Das told federal investigators that he told executives, including Ms. Holmes, that the company’s blood-screening devices (called Edison devices) “never performed at the level of accuracy and precision required, and could not have generated any results which had clinical value.”

Dr. Das also will testify that he had a difficult time explaining to Ms. Holmes why it was a problem that the Edison devices were showing a prostate-specific antigen in women’s blood screens.

Good thing the Feds found the lab director. As the saying went in Perry Mason times, “The prosecution rests.”

The 600+ senior partners at McKinsey voted to deny managing partner, Kevin Sneader, a second term. The gang had not ousted a managing partner since 1976. Mr. Sneader, poor schlub, had to deal with the mess from McKinsey’s consulting gigs with Purdue Pharma to increase sales of OxyContin during an opioid addiction crisis in the United States. That consulting work preceded Mr. Sneader’s tenure, but he was at the helm when the consequences hit.

McKinsey also had issues with its work in South Africa, Saudi Arabia, and conflicts related to its bankruptcy consulting and even in its opioid settlement of agreeing to pay $600 million. Mr. Sneader dealt with those problems, all the while being pounded by the business press.

Mr. Sneader used the terms “arrogant” and unaccountable” as he did the clean-up work even as he was changing McKinsey policies. Why the scalawag was actually placing limits on what McKinsey would and would not do. In fact, top partners had to approve controversial clients. Perhaps the partners saw the fading away of clients such as Juul and South Africa’s corrupt leaders as well as the loss of bankruptcy work riddled with conflicts of interest. So, Mr. Sneader did not even make it to the final round of balloting. When you try to rein in a culture of unfettered expansion, you make some powerful enemies.

The final round of balloting is coming. One of the two finalists oversees McKinsey’s bankruptcy restructuring business. That area of practice brought a $15 million settlement with the Justice Department for McKinsey’s failure to disclose conflicts. There’s a split in the house of McKinsey. Along what lines is fairly easy to detect.