Wow – scratch a hedgie and…

… you don’t know what you’re going to find.

… Mr. Martoma changed some of his first-year [Harvard] law school grades from B’s to A’s, including one in criminal law. He then sent the forged transcript to 23 judges when he applied for federal clerkships.

… After Harvard expelled him, Mr. Martoma, who at the time was known as Ajai Mathew Thomas, legally changed his name to Mathew Martoma in 2001, the same year he entered Stanford. It is not known what name Mr. Martoma used on his Stanford application.

Three years after graduating from Stanford [who knew Stanford had an eye for forgers?], Mr. Martoma landed a job as health care stock portfolio manager at SAC Capital. Jonathan Gasthalter, an SAC spokesman, has declined to comment about whether Mr. Cohen’s hedge fund was aware of the Harvard incident when it hired Mr. Martoma.

Why not be honest and say We not only knew about it; it made him a shoo-in

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Details, in case you want to give it a go.

In late 1998, Martoma, a graduate of Duke, altered the transcript of his first-year law school grades: He gave himself A’s in Civil Procedure, Contracts, and Criminal Law, rather than the B, B+, and B he’d earned, according to a Harvard Administrative Board report. He applied for clerkships with 23 judges using the altered transcripts. Weeks later, someone in the school’s registrar’s office discovered that the transcript had been changed. Martoma then withdrew the clerkship applications and told Harvard that the doctored transcripts had been sent out by mistake.

In a classic example of how the coverup is usually worse than the crime, Martoma appealed his dismissal from Harvard by arguing that he’d withdrawn the applications before he was caught and that the improper transcripts had been submitted accidentally. His efforts apparently involved creating a fake computer data forensics company, complete with a professional-looking marketing flyer, to corroborate the time stamps of his e-mails.

All sorts of unsettling news involving UD’s university this morning.

As we speak, a shooter (or shooters) at the Washington Navy Yard has killed or wounded several people, some of whom have been transported to GW Hospital. UD doesn’t teach today, but she can imagine the scene outside the hospital, with police, reporters, families, onlookers, etc. And this is already an extremely busy Washington intersection, with the metro, law offices, and GW medical school buildings immediately adjacent.

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UD hadn’t planned on posting about the firing of GW’s business school dean, but the story has gone from strange to bizarre to bizzzzzaro in the last few days, so here goes.

Handsome young hotshot Douglas Guthrie is hired away from NYU three years back to lead GW’s way-ambitious b-school (it not long ago got an amazing new building, plus a big ol’ budget…). Guthrie overspends his budget rather shockingly and is for this reason (or so the official story goes) fired.

It’s very bad news for the b-school, which has lately seen lots of administrative turnover and disappointing national rankings.

It gradually becomes apparent that Guthrie has a story to tell, and he has really spilled it to The Hatchet, the school newspaper. The suggestion in the story (partly coming from Guthrie, partly from others) is that the overspend was a cover story, the real deal being charges against Guthrie of “making illegal financial deals in China and having sex with colleagues.” These charges apparently came from the chair of the Faculty Senate executive committee, and Guthrie seems to be claiming that it was his lawyer’s letter to the university, discussing the possibility of a slander lawsuit, that really prompted his firing.

As to whether Guthrie might have tried to profit personally from his overseas university work … who knows? There’s plenty of precedent for it, with Harvard’s Andrei Shleifer (his adventures in Russia cost the university $31 million in penalties) the most notorious case. But the explosive charge in the GW newspaper piece is this one: The executive committee chair apparently also charged that

Guthrie had been sharing profits with [university provost Steven] Lerman and other top administrators, according to [another faculty member's] complaint.

Yikes.

‘WHARTON PRODUCING ITS SHARE OF CRIMINALS ON WALL STREET’…

… went the headline way back in 1988, an earlier insider trading season. Having covered oodles of more recently imprisoned Wharton grads on this blog, my question is: Is the Wharton school criminogenic? Does it take nice boys (they’re all boys) and make them naughty? Or is it (as UD suspects) simply notorious for being the go-to place to learn how to be a financial crook and to make, er, connections with other people along these lines? Just put WHARTON in my search engine for a sample of these amazing high-flyers! I’m thinking that if you’re not planning to defraud at the very least a thousand investors, you’re not going to bother applying to Wharton. I’m thinking that if you’re not planning to steal in the tens of millions you’re not going to bother with the application fee.

So – and I know – who’s counting? – but so the latest Wharton guy is Courtney Dupree, also a product of scandal-city University of North Carolina. Once a mover/shaker in his “super-chic loft on Broad Street in Manhattan’s financial district,” he’s now off to seven years in prison for an $18 million bank fraud. And The Legend of Wharton lives on.

“Some Twitter users also reported that the meteor crashed somewhere near the Delaware-Maryland border…”

Are you kidding me? That would be amazing.

Why should Chelyabinsk Oblast get all the fun.

Beware the B-School Boys: The Harvard Casebook

One of UD‘s most commonly used categories on this blog is Beware the B-School Boys, in which UD attempts to help you see econ and MBA grads coming. (For details, click on the category’s name at the end of this post.) Two recent instructive cases from Harvard are worth mentioning.

Florian Homm played a little basketball for Harvard when he was an undergrad there, but his big thing was business: econ undergrad; MBA grad. He seems always to have been a cultured crook, an intellectual Bernard Madoff who, after years of hiding from the law, has lately been captured. Bernie crafted crude Ponzis; Florian engaged in portfolio pumping, which takes a finer Italian hand.

As with nutty professor Paul Frampton, the New York Times writer covering Florian’s demise cannot help getting giggly:

Given Mr. Homm’s flair for drama, it was perhaps fitting that he was arrested at the Uffizi Gallery, famous for an exquisite collection that includes works by Michelangelo, Rubens, Tintoretto and Rembrandt…

But it is unclear why Mr. Homm, who is 201 centimeters, or 6 feet 7 inches, tall and something of a celebrity in Germany, would appear in a place where there are many German tourists and he was likely to be recognized.

The seduction of beauty! From Sozzo Tegliacci to the SEC in one shattering second!

But seriously, folks; there’s something about a Harvard and high-style Euro charisma that makes investors unwary… And UD‘s a little worried that you’ll still fall for Florian in his latest iteration:

“The pursuit of happiness is not correlated with the pursuit of money,” [Homm said in a recent interview]… Mr. Homm insisted he was no longer the same person who once owned a stake in a Berlin brothel and lived in a $5 million residence on Majorca with a Russian table dancer. He said he prayed daily and was devoting his energy to charity work.

Okay so I want you to bring a smidgen of doubt to this self-description too, okay? Remember: Beware the B-School Boys.

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Though he seems never to have taken any classes with him, Florian claims to have known and even worked with Harvard’s notorious professor Michael Porter (Porter has said he does not remember Florian). Porter’s now-bankrupt Monitor Group failed to register as a lobbying outfit, did fellatial obeisance to Muammar Gaddafi, and so on and so on. If you didn’t put your money on Florian, maybe you’re tempted to put it on Porter, who remains a Harvard professor, and is not being chased by the SEC. Maybe you’re tempted to make him your business strategy consultant.

Beware!

[Porter's] picture of CEO-superdeciders helps justify their huge compensation and the congratulatory press coverage, and yet [it] has little foundation in fact or logic. The strategy business … lasted so long in part because it supports and advances the pretensions of the C-suite.

Porter’s strategy theory is to CEOs what ancient religions were to tribal chieftains. The ceremonies are ultimately about the divine right of the rulers to rule — a kind of covert form of political theory. [One observer says] it is “like a ritual rain dance. It has no effect on the weather that follows, but those who engage in it think that it does.” … [Monitor was] doomed from the outset. Its embarrassing debacle marked the beginning of the end of the era of business metaphysics and the exposure of the most over-valued idea on the planet: sustainable competitive advantage.

Ginsburg’s Howl

Go where the need is greatest, they say, and wealthy businessman Douglas Ginsburg became convinced that yet another fitness center on Georgetown University’s campus – this one exclusively for the use of law students – would best serve humanity.

He gave millions of dollars toward its construction, and the whole deal was basically one of those love-fests – Georgetown was gonna plaster his picture on all the medicine balls or whatever; the school invited him to be on the Board of Visitors …

Sure, the university was aware that the SEC was somewhat, er, exercised about Ginsburg’s insider trading; but what would universities, from Brown to the University of Michigan, do without insider traders on the faculty and the board of trustees? All that money has to come from somewhere…

So, I mean, they took the money and they built the dealie, but when Ginsburg actually got hammered by the SEC, Georgetown decided, on reflection, that it would rather the face of an insider trader not be hung, like one more religious icon, from the Jesuit school’s walls.

This behavior shattered Ginsburg’s innocence. In his lawsuit, he writes:

“Ginsburg was invited to join the Georgetown Board of Visitors, welcomed to university functions, invited on university trips and generally embraced by the university, all with the goal of extracting ever more money from him.”

So! It had all been a nefarious tit for tat!

Now that the scales have fallen from Ginsburg’s eyes, he has sued, not only to get his money back, but for the repair of his idealism.

In the grand tradition of…

Henry Mintzberg [scroll down], the head of Tel Aviv University’s undergraduate business program has urged students not to major in business.

“Study of academic disciplines prepares students to think scientifically in these fields and form the foundation for advanced studies in graduate degree programs,” he said.

One student is outraged:

“Too bad he doesn’t have the integrity not to head a department he doesn’t believe in.”

Do you have to insist on majors in order to believe in your department? UD says no. UD says it shows integrity to care about the quality of undergraduate education your business… minors?… are getting and steer them toward actual academic fields. (Wee UD herself found that the hard-bitten vocationalism of Northwestern University’s Medill School of Journalism was not enough to keep the mind alive, and quickly transferred to the English department.)

**********************

Meanwhile, on the business ethics front, a New York judge has sentenced an insider trading to lecturing.

“To the extent possible, Mr. Fortuna can speak at his college and school of business and other institutions about his own situation and how [easy] it is for him and others to have committed this crime and the difficulties he’s encountered as a result,” [Sidney] Stein said yesterday as he imposed the sentence.

UD foresees an entire industry of MOOCs arising out of the synergy between large numbers of incarcerated insider traders and the need for business schools to deal with their profession’s, er, ethics problems. The general title for these MOOCs would be INSIDER GATING, with subtitles specific to each incarceree’s case.

“To think an ethics course is going to make ethical students is living in a dream world. I would be most suspicious of anybody who makes straight A’s in Ethics. If you want more ethical people, pass laws that can be enforced and enforce those laws. What keeps me on the straight and narrow is the idea of appearing before the Accountancy Board or even before FINRA, the SEC, or the Securties Board of my state to defend my license. That is my motivation to be ethical.”

This commenter, responding to a typically mushy article about teaching ethics in American business schools, says what UD always says about this subject. Either you scare b-school grads into good behavior, or forget it.

I mean, plenty of b-school grads are good people and will follow the law yadda yadda. Plenty aren’t good people, however, and they won’t follow the law. Are b-schools responsible for trying to change the not-good people into good people before they leave their business programs?

UD thinks it’s sweet of them to try, sweet of them to rig up be-good courses. But it don’t make no nevermind and you know it and I know it.

In line with this sensible commenter’s comment, UD, she reminds you, has proposed the following:

1. Drop all business ethics courses.

2.
Initiate a program of visiting lecturers drawn from convicted business fraudsters residing in local prisons.

************************

UD thanks David for the link.

“[A] state like Illinois with a high corruption rate makes a better investment than a state with a moderate corruption rate… The reason is that the return for your bribe is more certain in a highly corrupt environment.”

A recent study by a group of business school professors has intriguing implications for MBA programs throughout Illinois.

Because traditions and lines of bribery tend to be both clear and reliable in fully corrupt countries, it’s far easier to do business in them than in only partially corrupt countries.

The authors of the study see no reason why this principle couldn’t apply to American cities and states; and, a Chicago Tribune columnist points out, “Chicago just last year was deemed the nation’s most corrupt city and Illinois the third-most corrupt state in a well-publicized analysis.”

Rather than force their MBA students to take absurd ethics courses (UD‘s critique of these courses may be enjoyed by clicking on the category Beware the B-School Boys), business schools throughout Illinois might instead exploit their state’s curious advantage by offering modules on the tradition and fine-tuning of graft.

Last Thursday, early evening…

UD was entering a blue line train at Foggy Bottom, and a woman with lots of luggage sat down next to her. The woman apologized for taking up so much room with the luggage, and UD commiserated. “No fun dragging lots of stuff from one car to another.”

The woman explained that she commuted twice a week to a lectureship at GW University’s school of business. “I teach a class in business ethics.”

Readers of the UD category Beware the B-School Boys know that UD has what to say about that.

In her shy, tongue-tied way, UD took advantage of the three minutes they had before they went their separate ways at Metro Center to tell this woman all about her area of specialization.

The woman was a good sport, and she came right back with a defense of the enterprise, and UD came back from the defense, etc., etc.

I swear it was all very amiable, with the woman (they exchanged names on the platform, but if you think UD remembers swiftly exchanged names on noisy platforms, you don’t know UD) insisting that “in the long run” unethical behavior destroys shareholder value, and UD insisting that short-term profit seems to suit a lot of people perfectly well, thank you, and that for instance insider trading – both unethical and illegal – seems absolutely rampant — you might say even structural to the economy — and even after the feds finally drag in Steven Cohen it will continue to be a practice many business people defend and engage in…

UD‘s hastily attempted point (swaying train, unsteady luggage, crush of commuters) was that business schools are hopelessly up against a humongous cognitive dissonance between moral scrupulousness and the nature of competitive financial markets. She was not saying, she yet more hastily hastened, that free marketeering was the work of the devil. She merely pointed out that mild to extreme cheating was endemic to the project, and the business school that fails to take this into serious account runs the risk of having its ethics component be a laughingstock.

You see, the rhetoric of university business ethics courses always looks like this. This Globe and Mail article begins, as most on the subject do, with the rampant reality:

Over the past decade, a succession of high-profile corporate crimes has spurred business schools, globally, to infuse business ethics and leadership into course content.

Not just the last decade, of course; corporate misbehavior and crime has been massive for decades. And business schools have been offering tons of ethics courses through all of those decades. But, you know, check out this category, Beware the B-School Boys. Just read the latest entry in it, about the dean of Columbia University’s business school.

Anyway, the Globe and Mail story goes on to announce that this new guy is really going to turn things around at Ryerson University…

Yet the language he offers his interviewer is dead jargon city. Leadership is a process, not a position… Let’s talk codes of conduct…

Faithful UD readers know what she proposes. Toss the courses. Initiate a lecture series featuring business cheats who got caught. These guys are often articulate, charismatic… Incentivize them by taking a bit of time off of their sentences for each speech.

The Dean of Columbia University’s Business School Shows his Students…

… how to do business.

If you want to make big money – say $1200 an hour – you can’t be too scrupulous about how you do research, and you can’t be too scrupulous about your clients.

As Matt Taibbi points out, Hubbard took $1200 an hour from the now-notorious Countrywide Financial Corp. to be an expert witness on their behalf in an insurer’s lawsuit against them.

… Hubbard testified on behalf of Countrywide in the MBIA suit. He conducted an “analysis” that essentially concluded that Countrywide’s loans weren’t any worse than the loans produced by other mortgage originators, and that therefore the monstrous losses that investors in those loans suffered were due to other factors related to the economic crisis – and not caused by the serial misrepresentations and fraud in Countrywide’s underwriting.

In other words, the Dean of the Columbia University business school testified that the fact that Countrywide claimed to have conducted thorough due diligence when in fact it was pressuring underwriters to approve 60 to 70 mortgage applications a day and failing to verify any income levels or other key information (to say nothing of the outright falsification of such data, which also went on on a mass scale) – he testified that these issues were irrelevant.

For that amount of money, you’d expect scrupulous research techniques.

Not.

So how did Hubbard manage to analyze Countrywide and conclude that mass fraud in its underwriting procedures wasn’t problematic? Easy: He didn’t look at the underwriting! All Hubbard did was take a group of Countrywide loans and compare them to a group of other loans from the same time period.

When that comparison revealed that Countrywide’s loans failed at about the same rate as the non-Countrywide loans, he smartly concluded that fraud wasn’t the problem and that macroeconomic factors must have been the cause.

Except for one thing: He left out the fact that about half of the loans in the “non-Countrywide” pool he selected for his analysis were originated by companies that were also being sued for underwriting fraud and other irregularities. What Hubbard did is compare a bunch of bad loans to a bunch of bad loans.

Taibbi concludes:

[T]his awesome ability to non-absorb information makes him qualified to be one of America’s leading academics.

ANOTHER feather in Wharton’s cap!

The Wharton School of Business. UD has lost count of how many graduates, just this year, have been indicted for incredibly high-level fraud.

[Craig] Toll … [is] charged with defrauding … investors out of $40 million, and scamming the federal government out of … $10 million [he was] given to help finance construction of a Haitian factory to build homes for hurricane victims.

Toll, 64, is a graduate of the University of Pennsylvania’s Wharton School of Business.

… [He is charged with] 23 counts of fraud and money laundering

Do you suppose anyone at Wharton notices how many of their graduates are criminals, or are under indictment? Or are, like Brown University’s highest-profile trustee, getting buzzed by the SEC an awful lot?

Hell, maybe Wharton’s proud of it. You have to figure there are tons more graduates out there successfully defrauding people.

“No one … contributed more to our class discussions of Sissela Bok’s `Lying,’ nor was anyone in our class as acute on the issues of moral capacity raised by Camus’ `The Plague.”‘

See now here’s a whole article about how exceptionally morally reflective Mathew Martoma was in college and graduate school.

One of his friends calls him “very smart and ethical,” and wonders: “Did the situation and SAC push him over the edge?”

Brown University’s highest-profile trustee, Steven Cohen, does run a strikingly … aggressive hedge fund, but if you allow people to blame Martoma’s insider trading indictment (he’s accused of the most lucrative insider trading in history) on his environment, you’re allowing them to blame the bad behavior of everyone (and everyone here means everyone from a less wonderful, less gloriously privileged environment than Martoma’s, which is to say everyone) on their environment. If you blame Martoma’s downfall on the misfortune of his having been hired by the most powerful, prestigious hedge fund in the world, I mean boooohoooo. Fuggedaboutit.

This guy isn’t your average impressionable morally middling guy. He’s described by lots of people as keenly knowledgeable and sensitive in the moral realm. There’s Dr. Rieux over there risking his life every day to save Oran from the plague, presiding stoically at the bedside of a child dying in appalling agony; and here’s Martoma bringing to that novel acute insights on the capacity of human beings to empathize with and sacrifice for one another. How can a guy able to reason about morality at that level cheat and steal like a son of a bitch?

***********************

Er, is this really a problem for you? Do you really think there’s a puzzle to work out here? Have you read Dr. Faustus, Notes from Underground, Hamlet, or almost any serious work of literature?

***********************

We can go back and forth, and I’m happy to go back and forth, about the utility of ethics courses in business school. Say we appoint David Petraeus to lecture in such courses, along with other people we think of as moral paragons. If we’re lucky, the focus of his lectures will be the very complex vulnerabilities and blindnesses and compulsions that lie within all of us.

Not that understanding this, even on a very high level, will tend to make you, personally, more ethical. Ask Michael Martoma, and many other insider traders who share his excellent upbringing, his excellent education, and his exquisite moral reasoning, about that. If anything, the staggering good fortune these people have enjoyed all their lives, their easy entry into elite settings, their great wealth, even their great intellect, tends to make them feel removed from the common suffering humanity that Dr. Rieux found so compelling. These days, Americans are wealthy in ways unimaginable in the past. Steve Cohen’s personal fortune is close to ten billion dollars, and Michael Martoma moved very much in Steve Cohen’s world. The power, and the almost absolute removal from common human life, this sort of wealth — or a life lusting after this sort of wealth — yields, has — obviously — for many people — disastrous moral consequences. No business school is going to talk honestly about this, because no business school wants to be in the business of saying Come to study here, and we’ll teach you all about limits.

I have tried to tell you. Clifford Orwin has tried to tell you. Stanley Fish has tried to tell you.

But you won’t believe us that ethics courses in business school are a total waste of time and money. As Orwin says:

By the time a student arrives at university, and a fortiori several years later when he ambles on to his MBA, his ethical character is already firmly set. Whether virtue can ever be taught was already a thorny question for Plato. Whether it can be taught to adults, in a classroom, shouldn’t be a thorny question for anyone.

Yet even with the latest amazing, high-profile evidence for our position, people continue to resist the idea:

A former student at Harvard Law School, [Mathew Martoma] co-wrote papers on medical ethics before seeking a business degree at Stanford University and joining a little-known Boston hedge fund. … [Martoma is] at the center of what U.S. prosecutors describe as the most-lucrative insider-trading scheme they’ve ever uncovered… [At Harvard Law School he] wrote two medical-ethics papers, one of which identifies him as a member of Harvard Law’s class of 2000 and as the former deputy director of the National Human Genome Research Institute’s Office of Genome Ethics.

Martoma’s partner in crime, University of Michigan professor Sid Gilman, spent decades on safety and ethics and compliance committees.

As ever, beware the b-school boys.

A trustee of the University of Colorado Business School has been indicted for insider trading. Guilty or innocent, he seems already to have been scrubbed from the school’s pages.

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