NewsNotables – Issue 65

Dear A.I.G., I Quit

The Wall Street Journal, March 25, 2009

Excerpts of a letter: on March 24, 2009, sent to Edward Liddy, A.I.G CEO, from Jake DeSantis, an executive vice president of A.I.G Group’s financial products unit.

“It is with deep regret that I submit my notice of resignation from A.I.G. Financial Products. Before describing the details of my decision, I want to offer some context: I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P. I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. After 12 months of hard work dismantling the company — during which A.I.G. reassured us many times we would be rewarded in March 2009 — we in the financial products unit have been betrayed by A.I.G. and are being unfairly persecuted by elected officials.”

DeSantis goes on to say he will keep his retention payment and donate the entire amount to those suffering from the global economic downturn. He is leaving “after 11 years of dedicated honorable service to A.I.G.” After being let down by the company and public officials he said he could no longer justify working 10, 12 and 14 hours a day away from his family.

Comment: The A.I.G. saga is very emotional for most people, but, as usual, there are two sides to this story. Our elected officials have shown outrage, much of the time to look good to their constituencies. It reminds me of Enron and Arthur Andersen where 99+ percent of the employees worked hard, were ethical and did a good job, but were taken down due to a few unscrupulous executives. Rather than washing all A.I.G employees down the toilet, as was done with Enron and Arthur Andersen, each situation should be examined with calm heads and dealt with on an individual basis. Edward Liddy became CEO six months ago after an illustrious career at Allstate. I have high respect for him and am confident he will do as good a job as possible guiding A.I.G. through this mess. It won’t be easy and the result may not be desirable.

Authorities Charge Madoff Accountant With Fraud

USA TODAY, March 19, 2009

Federal authorities charged Madoff’s accountant, David Friehling, with fraud, saying he “merely pretended” to audit Madoff’s firm. Friehling who ran a solo-practitioner firm in New York City, also took millions of dollars out of an account he and family members had with Madoff, in violation of rules that bar auditors from investing large sums of money with their clients. Friehling, who audited Madoff’s firm for 17 years, deceived investors by “falsely certifying” that he audited Madoff’s business and helped “foster the illusion that Mr. Madoff legitimately invested his clients’ money,” said acting U.S. Attorney Lev Dassin.

The SEC said Friehling is not charged with knowledge of the Ponzi scheme, but alleges that his firm, Friehling & Horowitz, did not “perform anything remotely resembling an audit” or try to confirm that stocks Madoff purportedly bought on behalf of his clients existed. This is a fundamental audit test.

The SEC says Friehling took steps to hide his investments with Madoff and that he told the American Institute of Certified Public Accountants (AICPA) that he did not do audits, which could have subjected his work to review.

Comment: As an auditor in my former life, these circumstances are absurd and the SEC and American Institute of Certified Accountants do not just have egg on their face but they should be thoroughly embarrassed. There were red flags everywhere but were ignored for 17 years. As stated above, Friehling told the AICPA “that he did not do audits,” but of course audited Madoff for 17 years. There is obviously something missing in those two statements. A sole practitioner accounting firm virtually cannot qualify to audit an SEC client. Where was the SEC? It appears that the SEC and AICPA turned their back on accounting rules and just plain common sense.

Lying on Your Résumé: What are the Career Consequences?

A women was offered a high level student services position at a prestigious college that she was thrilled to accept. Two years later she was fired despite strong performance reviews and a reputation as a rising star at the college. The reason was that she lied on her resume about having a master’s degree. It wasn’t the lack of a master’s degree that she lost her job, it was her dishonesty.

Steven Levitt, coauthor of Freakonomics and an economics professor at the University of Chicago, cites research stating that more than 50 percent of the people lie on their resumes. Common resume lies include falsifying academic credentials, padding dates to mask employment gaps, exaggerating job titles, embellishing job responsibilities and achievements, claiming sole responsibility for team efforts and even making up fictitious employers.

Comment: When someone cheats on their résumé, it hurts honest people. Honest job applicants can lose opportunities to résumé cheaters who give themselves an unfair advantage by fabricating or exaggerating their accomplishments. I have read hundreds of résumés and many times wondered how companies could let someone go after they had saved the company millions of dollars. The cheaters also do damage to themselves. They have to live in constant fear that they will be caught someday and have to live with guilt of knowing what they did was wrong.

By Roger Eigsti
Board President,
Institute for Business, Technology, and Ethics