Rappers Question Fiscal Responsibility with Their Tax Dollars

2 Chainz and Cardi B have had a harsh reality. Like the Beatles and their “Tax Man,” the successful artists have learned that the IRS does take a chunk once you land in those higher income brackets. They are upset that they have to pay, but fear the Wesley Snipes treatment, “Don’t let ’em try to Wesley you. You get rich, they got’ try to Wesley you.” Along the lines of George Harrison’s lyrics:

Let me tell you how it will be
There’s one for you, nineteen for me
‘Cause I’m the taxman, yeah, I’m the taxman

The rappers also question where the money is going: There are rats on the trains, and “y’all not spending it in no damn prison.” Harrison saw the same issue all those yers ago:

Don’t ask me what I want it for
(Ah, ah, Mr. Wilson)
If you don’t want to pay some more
(Ah, ah, Mr. Heath)
‘Cause I’m the taxman

Wilson was the British prime minister at the time.

Interesting that artists see the same issues over the decades. However, Mr. Harrison’s lyrics can be reproduced in the family hour — the full content of the rappers’ choice of words and turns of phrases cannot be shared with a “G” audience. Fascinating, however, that views and talking points on taxes change once success comes and the tax bills come in. Welcome to the highest brackets of talent and taxes.

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Deja Vu All Over Again: Bribery in the 2020 Olympic Games

The Summer Olympics will be held in Japan in the summer of 2020, a selection that was made in 2013. The head of the Japanese Olympic Committee will resign in June because investigators have uncovered a vote-buying scandal that swayed the members of the International Olympic Committee to vote for Tokyo over Madrid and Istanbul.

Tokyo and IOC members have short memories. Salt Lake City officials engaged in all types of vote-buying to get the 2000 Winter Olympics to Utah. Everything from shopping sprees to medical care to college admissions were used to win the hearts and minds of IOC members. Japan used a simpler strategy and just funneled $2 million through a consulting firm owned by a son of a former IOC member who then tossed his influence around with the current IOC members from Africa to win their votes to Tokyo.

AH, the lessons of history — there are few scholars when it comes to bribes.

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“You start thinking you’re invincible and you can do no wrong. Then zappo.”

The late Karl Eller, former CEO Circle K Corporation and Combined Communications.

Mr. Eller has a life story worth a study. His father left his mother and his two siblings when Mr. Eller was five years old. He began his business life with a billboard company and then bought Circle K. Without retail experience, that chain of gas stations and retail stores went into Chapter 11 bankruptcy. Mr. Eller was 61 years old at the time and he had $100 million in debt from the retail foray due to personal guarantees. Rather than declare bankruptcy he told his creditors that he would pay them back. Some creditors wanted cash straight away, and he paid them 10 cents on the dollar. The remaining creditors who hung in there with him were paid in full. He was able to do so because he started another billboard company, which he eventually sold to Clear Channel for over $1 billion.

Mr. Eller wrote a book called, “Integrity Is All You’ve Got.” He repaid his creditors because, as he explained, he wanted to preserve his reputation. The Barometer served with Mr. Eller on a corporate board — he never missed a meeting. He had his detractors. The grass didn’t grow where Al Neuharth spat after talking about Mr. Eller, wheeler-dealer. But, he was married to Stevie for 66 years. On balance, this man left this life with honor. RIP.

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“I am not aware of any wrongdoing on my part.”

Martin Winterkorn, former CEO of VW in 2015 when the VW falsified emissions test scandal emerged. Mr. Winterkorn resigned shortly thereafter. VW settled the emissions scandal with the EPA for $25 billion. However, on March 15, 2019, the SEC filed a civil suit against VW and Mr. Winterkorn for misleading bond investors about the emission scandal. The complaint alleges that Mr. Winterkorn was told of the emissions falsification as early as 2007, just after he became VW’s CEO.

The Barometer believed that the phrasing of the Winterkorn. See post on September 17, 2015 for these denials:

“I am shocked by the events of the past few days. Above all, I am stunned that misconduct on such a scale was possible in the Volkswagen Group.”
“I am not aware of any wrongdoing on my part.”
“I am stunned that misconduct on such a scale was possible in the Volkswagen Group.”

According to the SEC complaint, which lawyers for VW call “legally and factually flawed,” and VW will offer a vigorous defense. However, the complaint highlights Mr. Winterkorn’s management style of micro-management and noted this quote in the 2010 annual report of the company:

The Volkswagen Group is so successful today because this notion of ‘digging deeper’ has become part of our corporate culture. . . . As an automotive manager, it is not enough simply to enjoy driving cars—you have to understand them right down to every last detail. Many things in our Group today only work because my Board of Management colleagues and I are extremely well versed in all aspects of the business. If developers say that a solution is not possible from a technical, timing, or financial point of view, I am able to challenge them. And everyone knows that.

And the complaint also alleges:

Winterkorn and other VW executives were made aware of the defeat device as early as November 2007, during a meeting with VW engineers, to discuss the emissions problems with VW’s “clean diesel” vehicles. Although at least one meeting participant warned that putting the existing vehicles on the road in the U.S. would damage VW’s reputation if the vehicles’ high emissions were later discovered, those concerns were ignored.

And the bonds were sold based on the representations of a successful clean diesel vehicle. The case will continue to highlight what the SEC has uncovered and strengthens the bond holders’ civil suit for recovery of their losses.

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The Ethics of Parenting

Three incidents in the news caught the Barometer’s eye that involve “parenting,” and bad judgment.

1. The kiddos storming Senator Diane Feinstein’s office, demanding action on climate change. Most analyses of the video focused on Senator Feinstein’s alleged arrogance in responding to the lads and lassies. The Barometer watched the video and wondered in awe at what kind of parents allow their children to experience that level of fear. Visions of sugar plums do not dance in these kids’ heads — they have had apocalyptic tales tossed hither and yon so much that what they seem to know, with great conviction, is that death, destruction, and dogs and cats living together (to quote the Ghostbusters) are a mere 12 years away. The cherubs have turned out to be a litigious bunch, bringing suit to halt their nightmares, via judicially imposed green dreams, plans, or beheadings. One, brought by Our Children’s Trust, is headed to the U.S. Supreme Court.

As Paul Tice pointed out in the Wall Street Journal, the last time kids took the lead on moving social policy the kids got hurt. The crusades of children through Germany and France to liberate Jerusalem ended badly — many of the children died and many were sold into slavery.

How about a little parenting that allows children to spend their time amongst the flora and fauna that we do have or even experience the concrete of an urban skate park before we offer them up as plaintiffs and activists in Senate offices? How about if we parents provide them with a secure environment, a solid education, and the assurance that society has the both the capacity and [some] adults to address dangers.

2. The slapping your child in the face with cheese squares. You have no doubt seen the videos of the toddlers having a slice of cheese hurled at them. The poor tots are visibly stunned by what has hit them. Several of them cannot see and do not yet have the motor skills to reach up and remove the Velveeta or Kraft square from their noses and foreheads.

Parents today clearly have too much time to spare. How on earth did this activity start? Now there is not only the fear that polar bears will be roaming their Santa Clara neighborhoods foraging for small children because of melting ice but that somewhere out there is a cheese slice with their name on it (both thanks to their parents).

3. The college admissions cheating. Words have not yet been invented to describe the parents who did this “for their children.” With this parental activity, the three examples come together into one common theme. Children are not props, children are not our entertainment, and children are not trophies that we hold up to show the world what we have produced. However, in this case, photo alterations, cash, and grad students changing exam scores produced the results. Vanity, vanity, all is vanity. Ecclesiastes 1:2. At some point, these sad youth will awaken and realize that the accomplishments their parents had painted, plastered, and baling wired on to them did not give them the skills, knowledge, or fortitude they needed to survive in a rugged world. In the quest to give their children everything, these parents deprived their children of what they needed most — work, resiliency, and humility born of the blessing of failing once in awhile.

As in business, the quest to make the numbers at any cost and by any means, gets you the numbers, but it kills the company.

Climate change, American cheese, and cheating — all with the common thread of parents who forgot to nurture, support, and set an example.

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Former KPMG Partner Convicted

David Middendorf, the former national managing partner for audit quality at KPMG, was convicted of four of five counts of conspiracy and wire fraud. Mr. Middendorf’s strategy waster audit qualify was an interesting one: obtaining information from employees of the federal Public Company Accounting Oversight Board (PCAOB) as to which companies that KPMG audited would be on the agency’s list for governmental review of audits. KPMG would then pull out the big audit guns (although the Barometer is not sure what that metaphor means when it comes to auditing) when conducting its audits of those companies. Quality is much easier when you get a heads-up on where the regulators are headed.

Jeffrey Wada, also convicted of three of four counts of conspiracy and wired fraud, was the PCAOB employee who passed along the information to KPMG. KPMG fired all of its employees involved in the activities, and three of those four entered guilty pleas. Mr. Mittendorf’s attorney indicated that he will appeal because “what happened was not are fraud.” What happened was wrong, however. Just because we cannot find a crime to fit the activity does not mean the activity was ethical. What a defense! I cheated on the exam, but it was not a crime. Oh, but it was, plainly, and simply, dumb. Funnily enough, when PCAOB went back and did a REALLY thorough check of KPMG’s audits, it found “serious deficiencies” in half. Looks like the audit quality title was a misnomer for Mr. Mittendorf. Amazing how so many convicted executives allowed pressure (financial, for goals, for recognition) be the sole processing mechanisms for their decisions and actions, which then actually defeated the very purposes of their jobs and their companies.

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“To be honest, I’m not worried about the moral issue here. I’m worried about the, if she’s caught doing that, you know, she’s finished.”

Gordon Caplan, private equity lawyer and co-chairman at the law firm, Wilkie Farr & Gallagher LLP, named “Dealmaker of the Year,” by American Lawyer, who was arrested in the Varsity Blue admissions scandal for his efforts with William “Rick” Singer to get his daughter into college.

Not really sure if we can measure honesty here. Mr. Caplan is accused of paying Mr. Singer $75,000 to improve his daughter’s test scores. However, Mr. Caplan had to have a psychologist certify his daughter as having a learning disability so that his daughter could take the ACT exam at one of the locations where Mr. Singer had bribable test administrators. Mr. Caplan and his daughter flew out to California, Ms. Caplan took the ACT, and, thanks to the administrator who changed her answers, her previous score jumped from the low 22 to 32, thanks also to the cash and Mr. Singer’s efforts. Mr. Singer wanted to go to a score of 33, but Mr. Caplan felt it was too much of a jump. In a phone conversation following the successful cheating, the content is damning:

Mr. Singer: “It’s the home run of home runs,” Singer later said.

Mr. Caplan: “It works every time?”

Singer: “Every time.”

Interestingly, the ACT balked twice at the daughter’s request for extra time on the exam based on a disability classification, but the Feds asked ACT to cooperate because they were running the sting.

However, assuming arguendo Mr. Caplan is being honest, he missed a thought — he may be finished too.

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Wells Fargo: Regulator Considers Mandatory Removal of Execs

Every business line at Wells is under investigation by the Justice Department, the Securities Exchange Commission, and/or the Comptroller of the Currency (OCC). Here’s how bad things are: The OCC has spent so much time at Wells Fargo that it is considering two unusual actions: (1). Charging Wells for its time there; and (2) Imposing mandatory changes in the executive line-up.

There are risk management issues, issues with required refunds to customers, delays in communicating with mortgage customers who had experienced improper charges, and mandatory insurance requirements for customers who already had insurance.

There comes a point where board members should have a few questions because Wells is now 2.5 years out from the discovery of the millions of fake accounts created by bank employees in order to meet performance and incentive goals. The issues are management issues, ergo, one turns to management. But, CEO Tim Sloan came from Wells. There have been changes, but, so far the feet don’t seem close to the fire.

If federal government regulators are not happy with the pace of change, the pace may be a tad slow because these folks are happy with slow. It took the Department of Health and Human Services six months to get a Social Security card to the Barometer, despite calls and letters. Eventually, the Barometer received 3 cards. In other words, when a non-crackerjack operation tells you that you are not running a crackajack operation, there may be some problems with management. This is the fifth or sixth wake-up call.

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Whoa, Nelly! Hollywood Stars, the Rich, and College Cheating

The allegations in the federal indictment outline one heck of a cheating scandal so that the wealthiest parents could get their children into the top-ranked schools. The schools are variously described as “elite” and “best.” The Barometer, having spent four decades in the academic trenches, wishes she could have had a chat with both parents and children: Graduating from Harvard, Yale, UCLA, UT Austin, Stanford, Wake Forest, Georgetown, and USC is no guarantee of a happy or successful life. Think OJ Simpson (USC), Jeffrey Skilling (Harvard), Janis Joplin (UT Austin), and so on. (The schools were not implicated in the indictments — they were the victims). Also, there are mighty successful graduates of community college, trade schools, or no college who have done just fine. Try and get a trim carpenter, or an AC technician these days and you learn that they are as rare as hen’s teeth and as expensive as your doctor or lawyer.

These discussions aside, the list of activities that comprise the allegations include:

1. Having others take the ACT and SAT for the famous and/or wealthy kids. Bribing test administrators took care of that problem.
2. Passing off the famous and/or wealthy kids as athletes to get admission when the kids had no athletic talent or experience. Upon arrival on campus, the famous and/or wealthy kids would feign a career-ending injury.
3. The rich and/or famous parents would make donations to a fake charitable organization, Key Worldwide Foundation, that would then make payments to university employees or testing officials who would then grease the skids for the kids. After all, what good is paying a bribe if you cannot deduct it as a charitable donation?
4. The ring leader of the whole scheme, William Singer, has entered a guilty plea. A Yale soccer coach will also enter a guilty plea, i.e., the rich and famous will be thrown under the bus. The Yale soccer coach is expected to plead guilty to accepting a $400,000 bribe in order to put one of the kids on her soccer roster. The parents of the fake soccer student-athlete paid $1.2 million to the Foundation for that plot. Seems like the margins were fairly high for Singer, eh?
5. 33 of the 50 indicted are parents, including actresses Felicity Huffman and Lori Loughlin.
6. Ms. Huffman paid $15,000 to have her oldest daughter’s SAT score altered a mere 400 points, up to 1420. Did anyone not question this wide swing? Ms. Huffman’s husband, actor William Macy was not indicted. Should be some interesting discussions over this one at home tonight.
7. Ms. Loughlin paid $500,000 to get her daughters admitted as a crew team recruits at USC. Ms. Loughlin’s husband, Mossimo Giannulli (you might recognize his name from your Target designs), was also indicted.
8. The wiretapped phone calls offer a treasure trove of evidence against the charged individuals.Jane Buckingham, a boutique owner, and another charged parent, agreed to pay $50,000 to have someone else take her son’s SAT and reflected in a phone call that she knew it was all a tall order, “I know this is craziness, I know it is. And then I need you to get him into USC, and then I need you to cure cancer and [make peace] in the Middle East.” That would establish all the intent the Feds need.
9. The kids knew. Now they will be living with the Internet stories and an eternal asterisk by their degrees.

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The Definitions of “Self-Made” and “On My Own”

Following a seminar, a participant approached the Barometer with an interesting story. He noted that his niece had posted photos of her new apartment and boasted in the not-so-private Facebook that she was finally “on her own” and completely “independent.” However, the gentleman also noted that his sister was still paying for her daughter’s cell phone, car, insurance, and, well, a host of other expenses that apparently do not count when a millennial makes the claim of “on my own” and/or independent.

Today, Forbes announced that Kylie Jenner is the youngest self-made billionaire ever. Hmmmmm! Granted, Ms. Jenner has had a career and lip gloss sales and such, but she did so with a little help from her friends, step=family, and family. The Kardashian connection, which all began when her mother, Kris Jenner’s, nee Kris Kardashian, first husband, Bob Karhashian, was a third- or fourth-chair on the defense team in the OJ Simpson murder trial. Kylie’s father, Kris Kardashian’s second husband, Caitlyn Jenner, nee Olympian Bruce Jenner, may have brought his daughter just a bit of attention. And the Kardashians and all their Kanyes might also have brought a bit of attention to their step-sister. Whirling dervishes of family drama no doubt dredge up a little attention to a make-up line in the self-made path to 21-year-old billionaire. Gates, Bezos, Zuckerberg, and all the Chap Seat, Gram-o-rama, and Pay-Day moguls mist be grinding their capped teeth. If only they had had a reality show.

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A quote from Wells Fargo internal blog on the bank’s incentives and Pau and ethics. One employee, and a union activist said in an interview with the New York Times, “There’s a sense among the workers that most of the reforms the bank has made are very superficial and only being done for PR reasons.”

As the Barometer has noted in these pages, the nationwide ads the bank has placed focused initially on social responsibility issues. Can’t fix the internal issues with external programs. The latest ads have turned to “real change” and “innovation,” and, of course, a new logo. Innovation and a new logo do not a real change make. Were I at Wells, I would start with the frontline employees, the internal blog, and chip away at the issues they are raising. The very best information about culture is in the culture itself, those who are working with customers and their compensation and evaluation systems. The top-down changes should be reversed. Bottom-up change is best because bottom-up change is real.

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Corruption in Nassau County: Convictions as Briber Turns on Bribee

It was a long and winding road through a mistrial, but former Nassau County executive, Edward Mangano and Linda, his wife, were convicted on corruption charges in the New York county. The charges involved the following actions:

Gifts to Mr. Mangano that included a $7,300 watch, vacations, and a $3,000+ massage chair
A no-show “food taster” job at a restaurant that paid $100,000 per year

The gifts were made by a business man, Harendra Singh, in exchange for Mr. Mangano steering loans, repayments, and beneficial programs to Mr. Singh and his businesses. Mr. Singh turned state’s evidence and was the key witness at both trials. You never trust the people you cheat with for they will throw you under the bus.

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Condemned by the House of Representatives for Something We Did Not Do

After reading the the resolution passed by the House of Representatives, the Barometer felt duly chastised. However, the Barometer and hundreds of millions of other Americans did nothing wrong. So, in response to the House of Representatives:

Whereas, hundreds of millions of us live our lives daily trying our darnedest to live a single admonition: Love one another.

Whereas, hundreds of millions of us admonish those around us when their words or actions are cruel to others and apologize sincerely when we have been cruel and, as part of repentance and forgiveness, seek to do better.

Whereas, hundreds of millions of us reach out to those who have been harmed by cruel words or actions with expressions of concern and love and offers to make things right.

Whereas, hundreds of millions of us long for elected officials to live by these simple rules and learn to love, admit, apologize, admonish, and heal (and preferably without the need for a week of debate and a 1300-word lecture).Also, when exercising righteous indignation, it is always helpful to actually note the impetus for the need for correction – i.e., a passing mention for what got your justifiable outrage rolling, not a litany of harms committed by everyone but the impetus, whereas).

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Virtual Property Tours Get Staged: The Use of Virtual Enhancements

You look at what computers can do, and the property looks fabulous. A wall is removed. The color of the trim around doors is changed. The kitchen cabinets are a different color. And, of course, the furniture is much better looking than what the owners modestly put in there. And digitally, the photos have all the household clutter removed. Instant model home, and all without a stitch of work by Chip and Joanna.

However, it is not real. The Wall Street Journal reports that those virtual listing photos may be misleading. May be? The photos show a contrast between what is an empty home and one loaded with furniture. One that is a haven for clutter to a slick, smooth, clean kitchen without so much as a coffee maker on the cupboard.

A word to the wise: See the property in person before committing. Virtual reality is a tad different from the house being listed. You need to see the virtual and the real.

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