“Big deal. I pay today; you pay tomorrow.”

Posted on September 20, 2008 by mmjdiary

Federal Judge Thomas Porteous’s attorney on why the judge did not disclose gifts of cash payments, lunches, and payments for travel, meals, and hotel rooms in Las Vegas. 

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The GMAT Questions in Advance

Posted on September 20, 2008 by mmjdiary

The Graduate Management Admissions Council announced that it was canceling the GMAT scores of 84 applicants and students.  The Council found that the students were active users of a now shut-down website, scoretop.com, a site with origins in China that posted live questions from the GMAT.  The site had 5,000 to 6,000 subscribers who paid $30 per month for access, but the Council is only canceling the scores of those against whom it feels it has an airtight case.  Two of the students whose scores were canceled are currently enrolled at the University of Chicago’s MBA program and another has already graduated from Stanford’s MBA program. Twelve of the students whose scores were canceled had posted questions on Scoretop.com and the remaining 72 allowed the site to post their testimonials that they had seen the Scoretop.com questions on their GMAT.  Ten of the 72 students had applied to Stanford but were denied admission — if you are going to cheat, at least make it worth your while!  The Council also announced that it would begin using a “palm vein” scan to eliminate proxy test taking.  The FBI broke up a ring of six test takers who had taken the GMAT for 590 applicants, at a price of $3,000 each. 

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The Dangers of Mixing Business, Government, and Good Intentions: Remembering Uncle Milton

Posted on September 20, 2008 by mmjdiary

Milton Friedman is mocked in the world of ethics for his unwavering conviction that the primary responsibility of business is to make money. Mix good intentions, i.e., social responsibility, with profit motives, Dr. Friedman warned, and you tinker with market forces. Tinker with market forces and you net perverse outcomes. With the markets reeling, the naive cry of “Greed!” as causation consumes the land. But one-seventh of the deadly sins can be curbed. Stoking its flames is risky. The subprime loans stoked the economy and led to the crisis in the financial markets. But one has to ask, “Why would lenders make such risky loans in the first place?” Subprime loans, are, by definition, high-risk, low-quality loans. Well, good intentions with a little mandate from the federal government, may have given lenders the perverse incentive to dabble in bad investments. Continue reading →

Posted in Analysis, News and Events | 8 Comments

Palin, Politics, and Patagonia: Ethics, Social Responsibility, and Uncle Milton

Posted on September 12, 2008 by mmjdiary

The Wall Street Journal reports that businesses from WigSalon.com to Kazuo Kawasaki (the manufacturer of Mrs. Palin’s eyeglass frames) are benefiting from the Palin nomination.  The wigs are flying off the shelves and the glasses frames orders have quadrupled.  Kazuo Kawasaki has shifted to a 24-hour production schedule to keep up with demand.  However, not all businesses want the sales Mrs. Palin’s style choices bring.  Mrs. Palin once joked, when asked who her favorite designer was, “Patagonia.”  Patagonia spokesperson Jenn Rapp said that the company had “absolutely no” intention to use the connection to promote sales, and added, “Patagonia’s environmental mission greatly differs from Sarah Palin’s.  Just wearing the clothing of an environmental company does not necessarily make someone an environmentalist.”  Continue reading →

Posted in Ethical Dilemmas, News and Events | 1 Comment

“Sexual relationships with prohibited sources cannot, by definition, be arms-length.”

Posted on September 11, 2008 by mmjdiary

Earl Devaney, Inspector General, Department of Interior, in his cover letter for the report on his investigation and findings at the Minerals Management Service division of the Department

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“A Culture of Substance Abuse and Promiscuity”

Posted on September 11, 2008 by mmjdiary

One would expect that kind of finding if one were doing an audit of the Mustang Ranch.  However, the Barometer is quoting from the Inspector General’s report on the Minerals Management Service, a division of the Department of Interior that is responsible for oil and gas leases.  Off-shore drilling takes on a whole new meaning with the report’s conclusions.  Let’s just say that you may have crossed a few ethical lines as a government employee if you are doing cocaine and marijuana with oil and gas company representatives.  Also, sexual relations with said representatives present a few ethical issues as well.  Nineteen employees were involved in the shenanigans that also included thousands in gifts from oil and gas reps.  With the networks struggling for new shows and viewers, the Barometer’s advice to networks execs is to tap into audit reports at both the state and federal levels.  There’s a treasure trove here that could make the “90210” crowd blush. 

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Those Fake Federal Government Mailings Are Out Under a New Ethics Code for Student Loan Industry

Posted on September 10, 2008 by mmjdiary

Seven student lenders reached an agreement with New York Attorney General Andrew Cuomo on their marketing practices.  One of the forms of marketing now prohibited under the new marketing code is the use of mailings that appear to come from the federal government.  Such mailings proved to be successful marketing tools because students believed the brown envelopes connoted “Feds.”  The companies, Campus Door, EduCap, GMAC Bank, Graduate Loan Associates, Nelnet, NextStudent, and Xanthus Financial Services, also agreed to pay $1.4 million in the form of loan education programs for students and their parents.  My Rich Uncle, a company not involved in the tactics or the resulting settlement, will support the code even though its marketing practices were deemed by Cuomo to be above board.  Other industries:  Take Note.  Mailings that appear to be from the federal government are not fair game when it comes to marketing.  Deception never is. 

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Pharma Consulting Fees for Docs: No Matter How Great Your Research or Noble the Cause, It’s Still a Conflict

Posted on September 10, 2008 by mmjdiary

Dr. Joesph Biederman and Dr. Timothy Wilens are members of the psychiatry department at Harvard Medical School.  The two scholars reported, in hindsight, $1.6 million they received from drug makers between 2000 and 2007.  The two are known for their advocacy of the use of antipsychotic medicines in children and the payments to the two came from pharamceutical firms that produce such drugs.  Consulting arrangements with the pharmas were already a topic of concern because the good docs advocated unapproved uses of the drugs.  Dr. Biederman responded to the disclosure of the fees and his belated compliance with university policy on reporting consulting arrangements, “My interests are solely in the advancement of medical treatment through rigorous and objective study.”  I’ll give him that.  The consulting fees are still a conflict, and there are two ways to manage a conflict:  Don’t or Disclose (and not 8 years later).

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Settle Up; Don’t Fight

Posted on September 10, 2008 by mmjdiary

A study published in Columbia Business Law Review teaches an important principle when it comes to personal injury suits brought against businesses:  Pay early and pay less.  The study shows that the savings per claim average is $114,000 and for severe injuries the average is $670,000.  Likewise, savings on lawyer fees average $32,000 (and $211,000 for severe injuries).  The study, done by Professor Jeffrey O’Connell (Virginia School of Law) and Associate Professor Patricia Born (Cal State Northridge), looked at settlements between 1988 and 2004 in Texas and Florida.  There is a risk for businesses in taking these cases to a jury.  The good professors’ work, ” The Cost and Other Advantages of an Early Offers Reform for Personal Injury Claims Against Business, Including for Product Liability,” can be found at 2008 Col. Bus. L. Rev. 423.  

Posted in Data and Studies on Ethics, The Legal Round-Up | Leave a comment

Broadcom Co-Founder’s Plea Agreement Rejected in Options Case

Posted on September 9, 2008 by mmjdiary

Dr. Henry Samueli, a co-founder of Broadcom Corporation, entered a guilty plea in June to lying to SEC investigators during the agency’s investigation of the backdating of the company’s options grants.  Broadcom settled with the SEC by paying a $12 million fine and restating its financials to reflect an additional $2.2 billion in expenses related to the options. The government recommended 5 years probation for Dr. Samueli, but the federal district court judge, Cormac J. Carney, rejected the plea because “the probationary sentence does not capture the seriousness of Dr. Samueli’s alleged misconduct.”  Both sides asked for more time.  Eighty companies have issued restatements because of options backdating.

 

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“The problem with principles-based accounting is that word, ‘principles.’ Those doing the accounting and auditing have to have them.”

Posted on September 9, 2008 by mmjdiary

M.M. Jennings

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The SOX Subsdiary Loophole

Posted on September 9, 2008 by mmjdiary

Since 2002, the Department of Labor has received 1,273 whistleblower complaints under the protective provisions of Sarbanes-Oxley (SOX) .  Of those 1,273 complaints, only 17 have been upheld by the Department of Labor as retaliatory conduct prohibited under SOX.  A total of 841 of the cases have been dismissed.  The remaining cases are pending, settled, or withdrawn. Why the low success rate for SOX whistle-blowers?  Well, there is a little known exception to SOX protections:  subsidiaries are not covered under the Act.  Employees at subsidiaries who blow the whistle on their companies are not afforded protection from retaliation.  The Department of Labor has concluded that the plain language of Sarbanes-Oxley indicates that it applies only to publicly traded companies.  The DOL is correct.  Congress needs to correct the language to include, “and subsidiaries of publicly traded companies.”  This is one heck of a loophole that permits subsidiary shenanigans with little risk of disclosure by employees who know they make a career-ending move when they throw down the flag at a subsidiary. 

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The Tragedy of Downey Financial: A Classic Example of the Seven Signs of Ethical Collapse

Posted on September 8, 2008 by mmjdiary

Downey Financial was a beacon of hope during the first savings and loan crisis that we lived through during the early 1990s.  Downey avoided the temptations of that cycle by not engaging in the accounting skullduggery of loan rollovers, not using artificially high appraisals, and not falling into the easy money of high-risk loans during a real estate market that knew no direction but up.  Now the company’s stock is down 90% this year and the Office of Thrift Supervision has not minced words in its directions to Downey: get some cash and strengthen management.  The company’s founder and controlling shareholder, Maurice McAllister, 83, was an icon for both his long-term success at Downey, founded right after World War II, and his reputation in the community.  But, Mr. McAllister also fell into one of the seven signs traps:  an iconic leader with direct-reports a full generation younger who are often related.  Charles Keating with his American Continental Corporation, The Rigas family and its management of Adelphia . . . Continue reading →

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Rangel Update — Interest Waived by Resort Developer

Posted on September 8, 2008 by mmjdiary

Charles Rangel has now hit the Barometer three times:  (1) He has four rent-stabilized apartments in New York City (this spread in NYC really rankles those who are living in those cubicles that were once used to sell knock-off purses until Louis Vuitton got testy about trademarks because they can’t find one available apartment); (2) He did not report rental income on a vacation home (depreciation was the reason this chair of the House committee that writes the tax code gave for the oversight — it’s a little known loophole in the IRC that if you whip up enough depreciation, you can get out of reporting income (???); and, now, (3)The developer on the vacation home waived the interest on Mr. Rangel’s loan for the purchase (but, Mr. Rangel’s lawyer, Lanny Davis, explains that al of the initial investors got that interest break); and, one more, (4) Some discrepancies in listed values for properties Mr. Rangel reported on his annual disclosure forms.  The scrutiny and questions continue, and we will keep you posted. 

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