(By Joseph W. Koletar) On March 28, 2016, Niall Ferguson, Professor of History at Harvard, published his thoughts that to defeat a network such as ISIS will require a countervailing network of countries, agencies, and people in many fields.

This is not unlike the movie, The Imitation Game, which recounted the efforts of Alan Turing, the head of the British team that broke the Nazi Enigma code in WW II, saving perhaps 14M lives in the process. Although Turing’s team had the best and brightest minds at its disposal, he came to the realization that only one machine could defeat another machine. (The Enigma machine had about 159 billion, million, possible combinations, which changed each day.)

Thus, he built a machine called a “computer.” Crude by today’s standards, but it broke the Nazi code.

Professor Ferguson makes somewhat the same argument regarding terrorism. He argues that only a network can defeat another network. The ISIS network is not only leaders, suicide bombers, and fighters. It is a worldwide, sprawling thing of many parts, great and small. It may number in the millions.

To date, the U.S. and some other countries have taken a tactical approach to the issue (e.g. killing or capturing its leaders.) While briefly satisfying, Ferguson argues it is not an effective long-term solution. As an example, he cites the work of U.S. Army General Stanley McChrystal, who broke down the silo mentality of military service branches and created the Joint Special Operations Command (J-SOC in military slang.) It has been very effective, but its scope has largely been limited to tactical operations. It is trying to expand its reach but it needs cooperation from many entities throughout the world.

All of this is interesting, but what does it tell us about corporate corruption? It tells us that while the actions of a given agency or country are useful, they are limited in an increasingly international economy, where not only people, but corporations, and political regimes may themselves be corrupt.

What happens in China can affect Kansas.

To deal more effectively with an international problem will require an international response. (A “network” if you will.) It need not be some massive life-form housed in a great building, but does have to have the resources and willpower to agree that what hurts one hurts all. (China and Kansas again.)

Do we have such resources at our disposal? Do we have leaders, and organizations, and financial resources at our beck and call? Yes, and No. They do exist, in bits and pieces, but they have yet to form much more than an elemental “network” to counter the tide of corruption that has flowed through recorded human history for thousands of years (read the Annals of Imperial Rome, by Tacitus.) This is not new.

So, here we are: aggrieved, hopeful for change, but powerless. I disagree. From the mud huts of Africa, to the cities of China, to the halls of Congress, to the suites of corporate empires, corruption is our common companion.

To quote a line from an old movie:

“I’m mad as hell and I’m not going to take it anymore,”

Once we agree on that simple proposition, we may be on our way to forming a “network.”

© Joseph W. Koletar, 2016.

Join us for more insights into behavioral forensics (behind fraud and similar white collar crimes) from the authors of A.B.C.s of Behavioral Forensics (Wiley, 2013): Sri Ramamoorti, Ph. D., Daven Morrison, M.D., and Joe Koletar, D.P.A., along with Vic Hartman, J.D. These distinguished experts come from the disciplines of psychology, medicine, accounting, law, and law enforcement to explain and prevent fraud. Because we are inspired to bring to light and address the fraud problems in today’s headlines, we encourage our readers to come back and revisit us regularly at BringingFreudtoFraud.com.

(By Jack Bigelow) Corporate fraud prevention and detection tools include organizational structure design, tests, checklists, “healthy skepticism,” and other nonpersonal procedures targeting financial mischief. But there’s growing interest now in looking at the deep psychological influences on managers committing fraud, to see why (beyond the surface factor of greed) they do it. We call this “Behavioral Forensics,” oft mentioned in this blogsite and deeply explored in our bloggers’ book, A.B.C.s of Behavioral Forensics. One aspect of behavioral forensics—a research stream in personality psychology only about 15 years old—is The Dark Triad Personality.
The Dark Triad Personality is explored in an article by Barry Jay Epstein and our blogger Sridhar Ramamoorti, a founding member of our Behavioral Forensics Group. The article, “Today’s Fraud Risk Models Lack Personality (CPA Journal, May, 2016, pp. 15-18, 20, 21),” describes the dark triad of human personalities comprising narcissists, psychopaths, and Machiavellians.
• Narcissists are grandiose, proud, egotistic, focused on personal power and prestige. Their vanity and lack of empathy make them unable to see the destructive damage they impose on selves and others. Sound like anybody you know?
• Psychopaths are antisocial and impulsive, selfish, glib, and irresponsible for their actions and therefore without remorse for them. Easily becoming bored, they crave stimulation, whether lawful or not. And committing fraud can be stimulating.
• And then there are the Machiavellians, and we’ve all experienced them: Manipulative and exploiting of others, cynical about morality, calculating, conniving, deceptive, and abusive of others who grant courteous treatment expecting reciprocation.
Dark Triad Personalities exhibit these behaviors—usually from more than one category. Some examples of the Dark Triad Personality: Jordan Belfort, “The Wolf of Wall Street,” Barry Minkow of ZZZZ Best notoriety, who “got religion,” became a pastor, defrauded the church he led, and is back in jail (the leopard didn’t change its spots). Epstein and Ramamoorti specifically mention “Chain Saw Al” Dunlap, “Crazy Eddie” Antar, and former Enron CFO Andrew Fastow, to name a few. “Not surprisingly,” they write, “….evidence suggests that corporate management contains a much higher proportion of dark triad personalities than the general population (italics added).” For these abnormal personalities, all that’s needed is the opportunity to commit fraud. Why is there a higher proportion of dark triad personalities within the corporate ranks? Our Bringing Freud to Fraud blogger Joe Koletar sheds some light: “The logic is simple: you do not look for trout in a corn field, and you do not look for pheasants in a trout stream. Every species learns to seek prey where it is most common.”
Thus, corporations are the most fertile sources of “food” for dark triad personalities. Corporations do not breed them. They attract them. They are their food source.

Several points for consideration emerge from this CPA Journal article:
• A fraud risk assessment protocol is incomplete without some examination—by professionals in the field of behavioral forensics—of the personalities of key corporate executives;
• Internal controls, audit procedures, segregation of duties, and other nonpersonal anti-fraud techniques are presently inadequate when one or more key executives may demonstrate Dark Triad Personality behaviors;
• Fraud control techniques based on “greed” alone as the motivator of fraudsters are doomed to fall short of targeting the potential for and actual commitment of fraud.
Could a wolf in sheep’s clothing—a Dark Triad Personality—exist within your corporate ranks? Might you have some wolfish traits yourself? What might trigger your DTP behaviors? In either case, what can you do about it?

Join us for more insights into behavioral forensics (behind fraud and similar white collar crimes) from the authors of A.B.C.s of Behavioral Forensics (Wiley, 2013): Sri Ramamoorti, Ph. D., Daven Morrison, M.D., and Joe Koletar, D.P.A., along with Vic Hartman, J.D. These distinguished experts come from the disciplines of psychology, medicine, accounting, law, and law enforcement to explain and prevent fraud. Because we are inspired to bring to light and address the fraud problems in today’s headlines, we encourage our readers to come back and revisit us regularly at BringingFreudtoFraud.com.

“The Founders would be appalled,” Apple wrote in its last court filing before it squares off against the government in federal court in California at a hearing on March 22.[1]

Alina Selyukh, “the two-way” Breaking news from NPR

(By Daven Morrison, MD) Trying to solve a recent terrorist act (when Syed Rizwan Farook, who with his wife killed 14 people in the San Bernardino shooting on Dec. 2), investigators have been stumped by an inability to access the records of a captured cell phone of one of the terrorists. This was a problem in this case up until this week.

This case, although the technical problem has resolved, has surfaced several problems: the challenge of privacy; “back door” methods to bypass privacy; the needs of government to enforce the law and prevent crime; and the need for those who sell technology solutions to provide privacy protection for customers.

Apple and the FBI escalated the rhetoric as things got heated around core values of American Democracy: privacy and security. In an article outlining the final legal salvos before the case heads to court, Apple claimed a distortion of the law forcing a private entity to release would be a “Cancer” that would jeopardize privacy for everyone.  “The Founders would be appalled,” wrote the company (not realizing that George Washington was the first U.S. spymaster who ran extensive intelligence operations!).

In response, the FBI countered with claims of Apple overblowing the request and the threat. They see the request as targeted and modest.  And probably not unreasonable, given the fact that private entities (banks, car rental companies, etc.) have been relaying information for criminal investigations for years.  Both sides rallied advocates to their cause before the FBI found, through a third party, access to the phone’s files and records.

But what if they were both wrong? What if the question they were asking is wrong?

To a man with a hammer the whole world is a nail.

Mark Twain

What if we determined the passwords from the cell phone owners—using their personal psychological profiles – rather than creating a security disabling code?

The FBI request was simple: “Apple, break into this phone so we can see what leads follow from this known radicalized (and murderous) terrorist.” Apple’s reply: “’No way;’ it is a slippery slope and the creation of the software would allow all customers’ collective privacy to be at risk.”

From the perspective of our team, The Behavioral Forensics Group, we believe there is another way: study the person and unlock the phone through understanding him. Psychological profiles and “social engineering” have been continuously refined for centuries. Knowing the triggers (what is personally valued) for access is very valuable to fraudsters. But this knowledge has also been used for good.

The CIA has used long distance psychological profiling for over a half century to provide security from rogue states and despots. Frank Abagnale, the main character who creatively commits fraud in the movie “Catch Me,” was converted to an FBI resource because he understands the counterfeiter’s mind. Sam Antar, who committed virtually all major forms of financial fraud, informed us of the importance of psychology and the critical nature of the mind in countering fraud as we were writing the book.  He shared:

As a fraudster, I succeeded for almost two decades because I understood how to exploit the psychological and emotional weaknesses of my victims. This book teaches auditors and antifraud professionals about fraud psychology, the “soft underbelly of fraud” —the emotional manipulation, big and small lies, and other behavioral cues that fraudsters employ to successfully execute their crimes. I call it the art of spinning, and the authors have described it as the predator-prey dance.  Without such an understanding of the behavioral dynamics of fraud, victims will always be doomed to lose (lots of money) and fraudsters will always have the upper hand.

Sam Antar CFO Crazy Eddie

Could it be used in this case?

Likely it could, with an experienced and multidisciplinary team. It has been suggested in fiction. In Sherlock, the series about Sherlock Holmes and John Watson set in the modern era, the team desperately needs to get into a locked computer and have limited time to do so. As they scramble to determine what it might be, they create a rapid psychological profile based on detailed analysis of what is in the person’s office. In the end, after making a mental picture of a conservative, rule-following army official (working in Britain) and noting that biographies of Margaret Thatcher are found in multiple forms at eye level, they type in “Maggie” and the computer unlocks.  All of the factors Sherlock Holmes discovers tie back to relative core biographical values. These values have unique personal emotional weight. this unique to the person’s narrative, but the basic emotions tie back to the core BIOLOGICAL affects we explore in the ABCs of Behavioral Forensics

Why isn’t psychological profiling being used for password identification?

The Forensic Investigators on our team recognize challenges to the use of psychological profiling for intelligent estimates of potential access passwords:

• We would need access to information about the password creators and their primary interests and concerns—either directly or through acquaintances;
• Absent the above, we would need to psychologically profile the groups or organizations of which they are members;
• We would need to allow for cultural influences as we interpret whatever information is gained;
• And all of this during investigations where time is of critical importance.

Yet, this has been done in this manner using these data sources and more. Jerrold Post MD designed, recruited, implemented and effectively executed a multidiscipline team to find this information as he ran the psychological profiling division for over 30 years at the CIA. Perhaps the most insightful experience related to this problem was when we presented to the FBI. We discovered while they have used some forms of profiling for years, and maintain a forensics psychological unit, they are not targeting fraud! Most of the resources are assigned to other crime investigations and virtually none are directed toward the minds of white-collar criminals. The case of the terrorist’s locked phone  is one where a competent team with allocation of behavioral forensics resources might have avoided perceived threats to privacy.

Join us for more insights into behavioral forensics (behind fraud and similar white collar crimes) from the authors of A.B.C.s of Behavioral Forensics (Wiley, 2013): Sri Ramamoorti, Ph. D., Daven Morrison, M.D., and Joe Koletar, D.P.A., along with Vic Hartman, J.D. These distinguished experts come from the disciplines of psychology, medicine, accounting, law, and law enforcement to explain and prevent fraud. Because we are inspired to bring to light and address the fraud problems in today’s headlines, we encourage our readers to come back and revisit us regularly at BringingFreudtoFraud.com.

WHERE HAVE ALL THE NEIGHBORS GONE?

KEEPING UP WITH THE CEO JONESES

(By Joseph W. Koletar) When someone hits the lottery by blind luck, peace and happiness spread throughout the land, right?

Perhaps not. Perhaps all that happens is that the fires of jealousy get fueled.

The Wall Street Journal of February 17, 2016 (page A-3), reported some interesting “collateral damage:”

“Losers in Lottery: Neighbors of Winners,” by Ben Leubsdorf

According to the article, research by the Federal Reserve Bank of Philadelphia found a significant increase in bankruptcies among neighbors of new lottery winners. Their theory is such people felt a need to “keep up” with their newly-wealthy neighbors and became financially stressed by the effort. The research was based on a study of a Canadian Province, and detailed the actions of winners and their neighbors over a period of ten years. The study eliminated areas with more than one lottery winner, and also lottery winners who later declared bankruptcy themselves. (Such things appear to actually happen.) Researchers chose to refer to this phenomenon as “…the link between income inequality and financial distress.”

All of this is fine and good, but what does it tell us about “C” suite fraud? What can the two disparate situations possibly have in common? Our hypothesis is simple – it depends on how you define “neighbor.” In the case of the lottery winners it was physical proximity. Our approach, to the best of our knowledge, is unique – what if one were to define “neighbors” as persons of similar hierarchical and status dimensions? By eliminating physical proximity we expand the concept of “neighborhood” to the world.

CEOs and CFOs know these “neighbors” very well: they travel in the same circles; they attend the same conferences; they may have gone to the same, or competing, schools; they often sit on the same boards; they compete with each other in terms of business and public status; and some put a premium on “winning.” Unfortunately, the latter desire/compulsion can lead to misconduct of the first rank. Early in our co-authored book, A.B.C.’s of Behavioral Forensics, listed prominently among the fraud perpetrator’s motives is, “Status: ‘Keeping up with the Joneses, fame, or fear of losing status.” (p.5)

Such considerations are hardly new. The economist Frederick Herzberg discussed, over fifty years ago, his theory that money has both an absolute and a relative value. Its absolute value is simple – five dollars is more than one dollar. In terms of relative value a purely psychological value emerges. A short example may suffice to illustrate this dynamic:

Bob takes a new job for $50,000 and is pleased with the salary, until he finds out Sue got an identical job in the same company at the same time for a starting salary of $60,000. At this point Bob becomes unhappy with the same $50,000 salary that once pleased him. It is the “law of social comparisons” at work, first expounded by social psychologist Leon Festinger in 1954, that drives competitive behavior with one’s peers (or neighbors, for that matter).

Do “C Suite” executives behave in this manner? Recent history suggests the answer is “yes.” From Bernie Madoff (serving his 150-year sentence for perpetrating a massive Ponzi scheme) to Jeff Skilling (former CEO of Enron now in jail) to countless others we see again and again the behavior of already wealthy people trying to gild the financial lily by any means necessary. It seems to be a primal need that defies logical explanation.

The eternal question is “Why?” Shakespeare wrote that “comparisons are odorous” (Much Ado About Nothing, Act 3, Scene 5), but Stanford psychologist Festinger surmised that the need to compare oneself with others is critically important in the development of the self-concept and self-identity, for we learn by looking at ourselves in relation to others. It is clear that the emerging specialty field of behavioral forensics, drawing on insights from behavioral sciences such as psychology, sociology, and anthropology, can shed much light on why fraud perpetrators act in the way they do.

© 2016
Joseph W. Koletar

Join us for more insights into behavioral forensics (behind fraud and similar white collar crimes) from the authors of A.B.C.s of Behavioral Forensics (Wiley, 2013): Sri Ramamoorti, Ph. D., Daven Morrison, M.D., and Joe Koletar, D.P.A., along with Vic Hartman, J.D. These distinguished experts come from the disciplines of psychology, medicine, accounting, law, and law enforcement to explain and prevent fraud. Because we are inspired to bring to light and address the fraud problems in today’s headlines, we encourage our readers to come back and revisit us regularly at BringingFreudtoFraud.com.

(By Joseph W. Koletar) For decades much organizational and public policy has been made on the presumption that corruption is a result of poverty or low pay. A new study reported in The Economist (“The Wages of Sin,” January 30, 2016, p. 65) may turn that presumption on its head. The study, by American economists Jeremy Foltz and Kweku Opoku-Agyemang, was funded by The International Growth Center at The London School of Economics.

The study analyzed the trip records of 2,100 long-haul truck drivers in Ghana. That country, it seems, is typical of many poor countries, in that truckers are ripe targets for corrupt police and customs officials seeking bribes. The article advises the average driver is now stopped 16 times on a cross-country trip, paying bribes at most stops.

The study’s authors had an interesting baseline from which to work. In 2010 Ghana had reformed its pay schedules for police and other public officials, causing police salaries to double. (The study was already underway before the adjustment of public sector pay.) The government expected better behavior by police and customs officials in return. In fact, the study shows following the pay raise bribery increased as more roadblocks were erected. Logic would seem to infer that better pay and risk of being caught would reduce bribery rates. The study’s authors postulate several reasons why this did not occur:

• Superiors now demanded an increased share of bribes collected.

• The risk of being caught in Ghana is so low that consideration of risk versus reward does not come into play.

• The pay raises may have given the police and customs officials a greater sense of self-worth, thus “justifying” the demand for bigger bribes.

All intriguing thoughts and worthy of additional study. The human mind may not be quite as rational as we hoped with regard to corruption, but it may be quite rational for the seekers of bribes.

Drawing inspiration from the nascent field of behavioral forensics (see A.B.C.’s of Behavioral Forensics, Ramamoorti et al., 2013) we raise the following questions:

1. If the actors are the same, and the extant, corrupt culture prevails, there is no reason to think that increased pay makes people more honest (on the faulty presumption that only poor people lack honesty and integrity); in other words, a poor, corrupt actor does not abruptly become honest through a pay raise. In fact, one economist is known to have wryly observed, “Honesty may be the best policy; however, that makes dishonesty the second best policy—that is the real problem.”

2. Prior to the “social contract” to increase wages for the police and public officials, was there any quid pro quo demanded in terms of reduced corrupt behavior in exchange for the increase in pay? How was it going to be measured, and who was going to measure such improvement? Economists typically overrate the ability of money to change behavior, and underrate the importance of psychology and human nature!

3. Some behavioral changes are quite independent of monetary incentives; many hard-wired behaviors are subject to physical and biological constraints. You cannot pay a person to be more intelligent, or more ethical, than they are. An important lesson about “hard-wired behaviors” comes from laboratory experiments–you can pay more money to a young person to improve their visual acuity on a “psychology of vision” experiment—however, money does not necessarily improve visual acuity! (Thus, a fundamentally corrupt person will not change, given more money–a leopard does not change its spots)

4. Blaming the “system” and de-personalizing corruption is similar to fining organizations but not holding individual executives accountable. Ultimately, everything comes down to personal, individual ethics and integrity.

It would be enormously instructive to “pierce the rationalizations” of these corrupt police officers and public officials through in-person interviews (ABC book, pp. 177-178). What were they thinking? Mo’ money for nothing?

Join us for more insights into behavioral forensics (behind fraud and similar white collar crimes) from the authors of A.B.C.s of Behavioral Forensics (Wiley, 2013): Sri Ramamoorti, Ph. D., Daven Morrison, M.D., and Joe Koletar, D.P.A., along with Vic Hartman, J.D. These distinguished experts come from the disciplines of psychology, medicine, accounting, law, and law enforcement to explain and prevent fraud. Because we are inspired to bring to light and address the fraud problems in today’s headlines, we encourage our readers to come back and revisit us regularly at BringingFreudtoFraud.com.

Greed’s ties to Technology and Values

(By guest blogger, Organizational Psychiatrist: David E. Morrison, M.D.)

The bloggers for this web page and authors of  The A.B.C.s of Behavioral Forensics (Wiley, 2013) argue that the motivations for fraud lie much deeper than the conventional wisdom’s diagnosis, “greed.”  As a consulting psychiatrist, I fully endorse that argument.  But I cannot dismiss the concept of greed as no more than a shallow excuse for wrongdoing among corporate fraudsters—that seems like a cop out!

Greed, in its hydra-headed, multifarious forms, has become a “clear and present” danger to our society.  My thoughts are triggered by two recent publications.  One is Sherry Turkle’s book, Reclaiming Conversation: The Power of Talk in a Digital Age (Penguin Books, 2015).  The other is a David Brooks’ column, The Evolution of Simplicity (November 3, 2015), in The New York Times. 

Turkle writes that people explain their “inability” to pay attention to friends, children, and even lovers by saying, “I have to be on my phone and other devices [and] because I am so busy I don’t have time to keep in touch with my friends.”  Brooks argues that in contrast with the simplicity movements of Thoreau[1] and Holmes[2], today’s yearnings for simplicity occur in a world of “rampant materialism and manifold opportunities.”

I believe both authors are referring to a greed that goes beyond money and is far more insidious.  Psychologically, greed means you consume without gratification.  Therefore, you are never satiated.  Thus, you consume without satisfaction, or feeling you have had enough.  You may feel pleasure, but you don’t feel happy.

Every “yes” is a thousand “no”s.

We have a society that does not know how to live in a state of abundance.  Philosophers have been lauding abundance for decades, but they have not seen its dangers for people who don’t know how to deal with it and who live in our consumer-oriented society.  People today are immersed in constant manipulations of their inclinations (think marketing, advertising, product placement, even to children!.) to acquire more and more.  But every “yes” is a thousand “nos.”  For every opportunity we commit to, there are many more opportunities that are declined because we said “yes”. By saying “no” we are setting limits.

Few institutions teach people to set limits on their impulse to acquire things, experiences, friends, victories, accomplishments.  To quite the contrary, self-help authors warn against being “too negative,” “good enough,” and “yes, but….”  These are notions that help us to set limits.  But limits are seen as bad in society today.  Without limits, humans become chaotic, exhausted, and The Self becomes fragmented.

Experiencing Greed, in the end, is miserable

The underlying problem here is indeed greed.  Nobel laureate Herbert Simon observed, “A wealth of stimulus creates a poverty of attention.” What Turkle misses in her book is that greed is what enables social media to rob us of focused attention, solitude, the opportunity for self-reflection, empathy, conversation, and all the other human needs she so clearly describes as being lost because of technology.

Brooks’ column brushes the surface of the issues, but it speaks to something else Turkle misses in her book—the deepest reason why people today sell their “souls (integrated self, autonomy, empathy, and the other essentials of being human).”  He writes, “One of the troublesome things about today’s simplicity movements is that they are often just alternate forms of consumption.  Instead of stripping away the chaos, they refine it with a more “organic, locally-grown and morally status-building form of materialism.”

Greed, along with envy, is one of the seven deadly sins.  Greed is even more primitive than envy and just as dangerous to the person and our society.  If we are to balance work, family, and self, we must say, “No,” frequently (setting limits), certainly more than saying, “Yes.”  Balance requires us to turn down things we want and even things we think we need.  But there’s a challenge for people who want balance:  We’ve had almost a century  of constant campaigning to see “yes” as good and “no” as bad.[3]

How much is enough to be fulfilled?

Glorifying consumption is an important component of capitalism and many people feel helpless to resist this pull (and onslaught).  They don’t even know that it’s an issue for them.  And to think about it as an issue makes them anxious.  The personal challenge is that it’s not just things that we are to consume.  We are encouraged to “grab all the gusto we can get,” “live your dream,” and become fulfilled.  Hoping to become fulfilled, people unreflectively go after information, images, friends (who needs more than 500+ “friends,” a la Facebook and LinkedIn, let alone thousands?), admiration, love, attention, power, and, yes, money (which is seen as a resource for getting the other things).

It’s important for leaders to address greed and the distractions of social media if they want to have productive meetings, loyal people, and problem solvers who can get to the real underlying problems (with their ability to focus, without distraction, beyond the surface and immediate issues to their causes).  To say nothing of finding balance in their own lives.

Even if greed is not the exclusive cause of fraud it is still a very destructive human response. In significant ways people are conned by unrelenting stimulation of their most primitive motivation, greed.  That may not produce fraudsters but it does contribute to personal problems and sometimes even fraud.

David Morrison MD has advised industry and local governments for over forty years. His clients have included the professional service firms, such as Andersen, and other industries including banks, manufacturing, retail and technology. He has advised City Managers of the affluent Chicago North Shore on issues of greed and balance as well.

(By Vic Hartman) Americans’ perception that bankers and Wall Street fat cats escaped accountability for their role in the recent financial crisis has not gone unnoticed by the Department of Justice (DOJ). The difficulties in prosecuting these executives has also been discussed on these blog pages, see “How To Explain the Mortgage Fraud Crisis: A Nash Equilibrium or a Nash Conspiracy?”

In an attempt to address the issue of individual accountability for their conduct inside a corporation, DOJ Deputy Attorney General Sally Quillian Yates issued a Memorandum dated September 9, 2015 to all DOJ attorneys titled “Individual Accountability for Corporate Wrongdoing.” This six-pronged memo that has subsequently been codified in the United States Attorneys’ Manual is a shot across the bow to counsels representing corporations. A primary tenet states, “. . . in order to qualify for any cooperation credit, corporations must provide to the Department all relevant facts relating to the individuals responsible for the misconduct.” The thrust of the memo is for federal prosecutors to focus on individual conduct throughout their investigations.

Will this policy change behavior? Will corporate counsels advise boards to start throwing executives under the proverbial bus? Will the threat of tire-tread marks across a pin-stripe suit cause executives to stop enriching themselves at the expense of the American public?

This policy has actually had two unintended reactions by the audience it intended to captivate.

• Federal prosecutors are actually a little offended that one of their prosecutors in chief has dispatched a missive outlining the obvious. Prosecutors have always felt their primary target is the individual and indicting a corporation should be considered when individualized evidence of guilt could not be obtained.
• Yates’ predecessor and now a member of the defense bar, former Deputy Attorney General James Cole, criticized the policy as “name and shame.” Cole cautions that corporations are on the verge of being required to turn over attorney-client privilege material and even open the corporation to more civil and criminal liability. He argues the policy will have unintended consequences. Executives will not want to talk to their corporate attorneys. Or, it will prompt corporate legal teams to form joint defense agreements with each individual executive’s counsel. The net result being less, not more cooperation.

Behavior modification is the goal. Let’s see how DOJ’s policy unfolds.

Join us for more insights into behavioral forensics (behind fraud and similar white collar crimes) from the authors of A.B.C.s of Behavioral Forensics (Wiley, 2013): Sri Ramamoorti, Ph. D., Daven Morrison, M.D., and Joe Koletar, D.P.A., along with Vic Hartman, J.D. These distinguished experts come from the disciplines of psychology, medicine, accounting, law, and law enforcement to explain and prevent fraud. Because we are inspired to bring to light and address the fraud problems in today’s headlines, we encourage our readers to come back and revisit us regularly at BringingFreudtoFraud.com.

(HOW DO CIVILIZED SOCITIES AND PEOPLE RESPOND?)

(By Joe Koletar)At about 4:30PM, Eastern Time, media reports began to come in about a series of coordinated and deadly attacks in and around Paris. As of the time of writing this post, reports continue about possible attacks yet to come.

This obviously reminds Americans and others around the world of the events of 9/11. The scenario is much the same: early reports, partial information, conflicting accounts, a rush to save victims and contain the violence, nations and their leaders in a high state of alert and action, pledges of international assistance and cooperation.

Our colleague, Dr. Daven Morrison, is well-versed in the psychology of the “lone wolf,” and what makes these people do what they do to harm others in the advancement of a given “cause.”  I believe that even if the Paris attacks were planned and executed as a group, the group is an aggregation of lone wolves who came together to achieve a purpose.  We will present Dr. Morrison’s thoughts on this vital subject in a later posting, but in the meantime, a few general observations may be in order:

• People who commit such acts are not “crazy,” although that term is often applied in the immediate wake of such violence. They are, as Dr. Morrison has argued, quite rational and perhaps even somewhat intelligent. Their acts require some degree of planning and preparation. They have a goal in mind. The young co-pilot who crashed a civilian airliner into the Alps is reported to have said shortly before the act “People will remember my name forever.”

• Likewise, school and movie theater shooters in the U.S. appear to have been acting out of a sense of anger and frustration. Workplace shooters may have more specific targets, such as current or former supervisors and co-workers.

• Banning guns is an attractive, but ineffective answer. Certainly some military-grade weapons should be subject to a fair degree of control as to who can buy them, but even a shotgun can produce significant harm. Gun control opponents argue, with some logic, that controls may well operate to ensure that only the criminals have guns.

• Given that efforts to control illegal drugs have had marginal success despite decades of increasing law enforcement resources and building prisons, can we reasonably expect that we will be more successful in banning illegal guns?

• Were all guns to disappear tomorrow, mass violence will not, for those so inclined. Driving a vehicle into a crowd or pouring gasoline in the entrance of a crowded venue have been used before and can be used again.

So where does this leave us? Do we adopt the premise that “they” cannot get us all? That is true in a numerical sense, but hardly a lofty goal in a developed society. No, we must turn to that vital but murky area – the human mind. Such an effort with be neither quick nor easy. It will require research, discussion, and a fair degree of experimentation.

Do we risk imposing a degree of “mind control” reminiscent of the novel “1984” or the current regime in North Korea? That need not, and should not, happen. However, we have had such programs for decades and have become so used to them we accept them as normal: cigarette usage, drunk driving, forest fires, environmental protection, spousal abuse, and the like. They seem to work. They do not eliminate the problem, but they appear to reduce it.

Are such programs too puny an answer to the horrific, but spasmodic, events such as those in France? Perhaps, but they are better than nothing. Face it – advertising works. It influences our choices in many areas, every day. If it did not, why would companies and organizations continue to spend billions of dollars

In a strange way, that is precisely what those who engage in mass violence are doing—advertising their cause, their anger, their frustration, to receptive “lone wolves.”  Should we not begin to counter their actions with “advertising” of our own?

We welcome your thoughts and comments.

© 2015, Joseph W. Koletar

Join us for more insights into behavioral forensics (behind fraud and similar white collar crimes) from the authors of A.B.C.s of Behavioral Forensics (Wiley, 2013): Sri Ramamoorti, Ph. D., Daven Morrison, M.D., and Joe Koletar, D.P.A., along with Vic Hartman, J.D. These distinguished experts come from the disciplines of psychology, medicine, accounting, law, and law enforcement to explain and prevent fraud. Because we are inspired to bring to light and address the fraud problems in today’s headlines, we encourage our readers to come back and revisit us regularly at BringingFreudtoFraud.com.

Say It Ain’t So, GI Joe

Here in northern Illinois, we have been witness to an amazing story of deception. As the local news story of a murdered hero cop, “GI Joe”, unfolded this fall, many of us were impacted. Beyond the media coverage, our daily lives were touched: from traffic congestion to several local schools being on lock down, the region was thrown into a quasi-military scene of catch the cop-killers. For all we knew, the killers were at large and we should lock our windows and doors at night. This week, we found that what we thought happened wasn’t true.
Say it ain’t so, Joe.
Now it is clear that as an inquiry was being made into Lt. Charles Joseph Gliniewcz’ mishandling of public funds, he decided it was better to fake his own murder than to deal with the embarrassment of what he had done. Stealing money from the Fox Lake Police Explorer Post, an organization structured to support children’s interest in police work, the Lt. and his family used the money for personal uses ranging from mortgage payments to adult websites. As reported on the Chicago Public Television station WTTW’s news show Chicago Tonight:
The scene afterwards became fodder for wall-to-wall coverage on local and cable news networks: a massive manhunt that went on for hours; an investigation that ultimately cost $300,000.
Why did he do this? What was his tipping point? Why did he decide to feign his murder on his off day and send the region into frenzy and create a national media frenzy? As we’ve now learned, it was because he was about to be caught as a fraudster. In fact, it appears that as he turned from hero to goat, another important person in the story, a relatively unknown administrator, turned from petty bureaucrat to heroine.
As the FBI uncovered text messages between GI Joe and his family, the Bureau shared these details with the task force in charge of investigating. This task force had been assuming they were investigating a murder scene. Over the last few weeks, the facts related to the murder being faked became more clear. And the facts also revealed the “why now”.
The Pesky Bureaucrat
We now know Lt. Gliniewcz was very anxious about inquiries into how he used the control he had over the funds of the Fox Lake Explorer Police Post group. This fear of being discovered, were directly tied to financial accounting questions initiated by Anne Marrin, the Fox Lake Village Administrator. It is now clear the questions she asked were the root cause leading to the international story of a staged event. The same forensic accounting investigation that revealed where he had been spending the money also highlighted why he decided to act when he did.
In fact, he was so concerned, he considered framing her with a DUI, and even made reference to murdering her. An excessive response for a simple inquiry into finances, right? Actually, perhaps not as excessive as one might think, given the emotional and character dynamics. So who is this Administrator?
The Village Administrator (also known as a City Manager) is not a glamorous role. The story of the profession of the City Manager is however a very noble one. City Management is designed to keep a city working for the citizens. Begun in the early 1900s, the guiding principles of a City Manager are his or her ethics. The profession began as a reaction to corrupt local politics that left citizens without basic services: fire protection, safe water services, clean streets, and effective policing of citizens and of those who provide the services. Like the quiet and reserved accountant in the movie The Untouchables, however, the Village Administrator’s diligent attention to detail and to ethics play an important role in rooting out real dangers to our social fabric. And as Lt. Gliniewicz’ case shows, when rooted out, actions intended to stop the looking clearly are at times capable of placing the administration under real threat.
Making sense and moving on
As a co-author on fraud, we wrote our text (see below) targeting motivations and rationalizations of the person who commits fraud. This case highlights the false pride (arrogance) and the profound shame that comes with the actions of a fraudster. What are the feelings for the larger community? For us? Here are some for the larger community to reflect on:
• Anger: at Lt. Gliniewicz for his dishonesty – from the theft of public funds to the deception of his murder;
• Contempt: for the investigators because they did not figure it out sooner;
• Embarrassment: for being fooled;
• Relief: that the Village Manager is safe, and the story is resolved (we can stop fearing that there are cop-killing murderers running loose in our neighborhoods).
Our task is to put the feelings into perspective. As we do so, they can be understood, discussed, digested and we can move on. Two of them are generally harder to “stomach:” contempt and embarrassment.
Contempt in many ways is easier to feel but harder to release. Contempt ties to feelings of dismissal and hatred. It can actually feel good to feel contemptuous toward bad people. We can use our contempt toward the task force to keep from looking at our own embarrassment. In this case, it would be justified to feel contempt to the Lt. and those involved in the theft and the deception. This reinforces our values of justice and social cohesion with the police as guardians of our need for a safe community. It is not legitimate to feel contempt toward the task force, in my opinion.
As someone who works not only with City Managers, but also Police Departments, I find it actually quite unreasonable to be contemptuous of the task force. “GI Joe” was good at what he did. He was trained in teaching others how to investigate a crime scene – including murders. They, as a task force, were under significant scrutiny to do their work well and be objective. Not only did they need to investigate a crime but they also needed to find the criminals: For all they knew, the murderers were still at large. And, in the end, using the available relevant data and condensing it down into an integrated and accurate story, they did the right thing. Watching the team led by Lt. George Filenko stand up to the criticism in the media, fueled by the strong feelings mentioned above, we can appreciate the importance of a justice system that is fair and objective.
Lastly, consider Anne Marrin. How hard must life have been for her? It’s not easy to stand up and ask for a proper accounting. In particular, not someone like GI Joe. Imagine the challenge it must have been to stay true to her concern when the entire region was turned upside down to find his killers and most of the nation turned and looked at Fox Lake to celebrate his life’s story. How many of us would have had the courage to have stood up to the hero worship that was manufactured for this thief? In many ways, we are very fortunate to have her. In general, I find this quite common in the professional City Managers with whom I’ve worked.
Suicide because of the profound shame around fraud is not unheard of; in fact, it played a role in Enron and other stories. (Please see the open to our book, The A.B.C.s of Behavioral Forensics). And just as suicide to avoid the shame of exposure is not new, neither is the importance of a city manager in halting financial fraud. Also, in our text we highlight the absence of the city manager in the story of Rita Crundwell and Dixon, Illinois. A local “hometown kid”, Rita ended up stealing over $56 million dollars from a town with fewer resources than Fox Lake.
In the end, the story of Fox Lake ought not to be remembered for the goat, GI Joe, but rather the heroine, Anne Marrin: an ethical and steady City Administrator.

Join us for more insights into behavioral forensics (behind fraud and similar white collar crimes) from the authors of A.B.C.s of Behavioral Forensics (Wiley, 2013): Sri Ramamoorti, Ph. D., Daven Morrison, M.D., and Joe Koletar, D.P.A., along with Vic Hartman, J.D. These distinguished experts come from the disciplines of psychology, medicine, accounting, law, and law enforcement to explain and prevent fraud. Because we are inspired to bring to light and address the fraud problems in today’s headlines, we encourage our readers to come back and revisit us regularly at BringingFreudtoFraud.com.

(By Daven Morrison)  This post is some brief follow-up musings regarding the preceding posting by Joe Koletar, KISS (“Keep It Simple, Stupid,” which could also be called, “KISOICM” or, “Keep It Simple; Otherwise I Confuse Myself”).

I believe that a part of what was happening in the jury were the challenges of fast and slow thinking.  Fast and slow thinking is a model of different problem-solving processes described by Daniel Kahneman.  Simply saying that 2X3=23 is an example of how a child uses fast thinking to not do the hard work of remembering or adding up the numbers.  Thinking about the rules (in this case, the legal requirements for conviction) is hard work, and it sounds as if the jury either could not or would not do the slow thinking required.  This is quite ominous.

Complicating this is the tendency for distracted people to use fast thinking more often.  They are likely to be distracted by the new media—smart phones, digested and summarized news flashes, etc..  Combined with the hard work required for slow thinking, the situation becomes logarithmically more ominous.  With a legal system based on jury assessment and processing of complex information, in a society trending toward distracted potential jurors, this trend is ominous indeed.

Join us for more insights into behavioral forensics (behind fraud and similar white collar crimes) from the authors of A.B.C.s of Behavioral Forensics (Wiley, 2013): Sri Ramamoorti, Ph. D., Daven Morrison, M.D., and Joe Koletar, D.P.A., along with Vic Hartman, J.D. These distinguished experts come from the disciplines of psychology, medicine, accounting, law, and law enforcement to explain and prevent fraud. Because we are inspired to bring to light and address the fraud problems in today’s headlines, we encourage our readers to come back and revisit us regularly at BringingFreudtoFraud.com.