For more information, see this week’s Research Report.

He sat on charitable boards and gave to university endowments. His company was sought out by investors and touted in business circles. True, there had been suspicions, but an investigation by the U.S. Securities and Exchange Commission (SEC) several years ago came to nothing. But last fall after federal agents got wind of fraudulent activities through an insider confession, his firm collapsed in what authorities called a giant Ponzi scheme. He’s now been indicted and remains under arrest for a scam that ran undetected for more than a decade and lost billions of dollars from hedge funds, nonprofits, religious organizations, and individuals.

It’s the story of Bernie Madoff, the disgraced New York investment broker arrested last month, right? Well, yes and no. In fact, the paragraph above exactly describes a situation that surfaced several months earlier in Minnesota. It concerned a high-flying Twin Cities entrepreneur named Tom Petters, who claimed to be selling electronic goods to big-box stores, using phony invoices to get loans and attract investors. In a scary parallel to the Madoff story, Petters was arrested in October after one of his top executives turned herself in to federal authorities and began secretly recording the conversations that led to his indictment.

What’s scary about the parallel is that, compared to Madoff’s $50 billion loss, Petters’ $3.5 billion loss invites us to use the word mere to describe it — so jaded have we become in the current atmosphere of massive scandals, bailouts, and stimulus packages. What’s scary is that we never seem to learn, from scam to scam, that they all have one thing in common: con artists who exploit the human lust for beating the system and getting rich quick. What’s scary is that these swindlers come in so many flavors — slick and charismatic, like Petters, as well as aloof and mysterious, like Madoff — that they’re hard to spot. What’s scary is that federal regulators in each case didn’t know what was happening — and still wouldn’t had high-level insiders not blown the whistle. What’s scary is that while Ponzi schemes aren’t new (taking their name from Charles Ponzi, who ran a notorious pyramid scheme in Boston that collapsed in 1920), they are now so leveraged by new technologies that Ponzi himself couldn’t have imagined their speed, scale, and reach. And what’s scary is that if scams like these can range all the way from Wall Street bankers to Main Street retailers, how many other scams are still out there, unexposed and unchecked?

Fortunately, we’re taking steps as a nation to address these issues. On the legal side, the SEC, understaffed and ashamed, is tightening its processes, as are other regulatory agencies. And despite our complaints about the superficiality of the news media, we still encourage and reward the kind of serious investigative journalism that the Boston Post used in 1920 to blow the lid off Ponzi’s original scheme and call in the cops.

On the ethics side, too, we’re understanding more about the moral courage required when insiders who suspect wrongdoing decide to come forward, and we’re beginning to make that process easier. We’re developing ways to distinguish mere values chatter from real values-based action, aware that Petters’ public recitation of his company’s business values (innovation, agility, execution, humility, and caring) notably lacked the ethical values of honesty, responsibility, respect, and fairness that, if lived, might have kept him out of trouble.

What’s more, we’re increasingly sensitized to the need to build ethics into the entire fabric of our culture. In a single week in mid-December, for example:

• Former Hewlett-Packard CEO Carly Fiorina, writing in the Wall Street Journal on December 12, noted that “never have common sense, good judgment, and ethics mattered more.”
• Tom Friedman, in his December 17 New York Times column, opined that “we don’t just need a financial bailout; we need an ethical bailout. We need to re-establish the core balance between our markets, ethics, and regulations.”
• The next day, president-elect Barack Obama, at a press conference announcing his nominee for head of the SEC, noted that “there needs to be a shift in ethics on Wall Street” and that “everybody from CEOs to shareholders to investors are going to have to be asking themselves not only is this profitable, not only whether this will boost my bonus, but is it right?”

That’s all good news. But beneath it the scariest question still lurks: Are we at risk of becoming a nation of Ponzis? Are we building today’s bailouts and stimulus packages to guarantee a working economy tomorrow — or are we, like Ponzi, paying current dividends out of our children’s capital? Are we renewing our physical infrastructure to facilitate stronger economic activity in the future — or are we, like Ponzi, taxing new investors to pay for old excesses? Are we capable of building a self-sustaining, steady-state economy — or are we, like Ponzi, shackled to a requirement for constant growth as the only way to keep our system afloat?

In a world so hammered by broken trust, what we most need is the moral radar that distinguishes the honest broker from the con. Among our most useful tools may be a caveat of inexplicable wealth — an instinct, intuition, or hunch that sends up warning signals whenever things look too good to be true, and a willingness to act on that caveat no matter how dazzling the promises. There may be no quick fixes — not from brokers, not from politicians, not from regulators — but just quiet, steady rethinking, realigning, and reinvesting. In the end, we can’t fight Ponzi with Ponzi.

©2009 Institute for Global Ethics

Questions or comments? Write to newsline@globalethics.org.

– Ethan Bronner, New York Times bureau chief in Jerusalem, speaking to the Associated Press about Israel’s barring of foreign reporters from entering Gaza to report on the current fighting. Israel says letting journalists into the war zone would endanger both them and Israeli security forces. Reporters’ groups say Israel is trying to spin war coverage in its favor by controlling media access to the conflict. The Foreign Press Association has appealed the ban to Israel’s Supreme Court, notes the AP.

Source: AP, Jan. 5.

NEW YORK and PALM BEACH, Fla.
Federal investigators last week began sorting through the assets of disgraced Wall Street guru Bernard Madoff in hopes of returning some assets to investors.

Madoff, accused of masterminding one of the biggest investment frauds in history, met a court-ordered deadline to provide a list of what remains of his assets, reports Agence France-Presse.

It is unclear how much Madoff actually has left, according to the U.K. Guardian. The only clues to Madoff’s personal wealth so far came in his confession to his sons, when he said there was only $200 million to $300 million remaining in the firm.

There was no immediate indication whether or when the list of assets would be made public.

Meanwhile, speculation continues into the ethics and personality traits that lie behind the alleged scheme. TIME magazine reports that forensic psychologists put narcissism at the top of the list of Madoff-type personality traits. “These people get real enjoyment from doing what they do,” forensic psychologist Michele Galietta of John Jay College of Criminal Justice in New York City told TIME. “They feel good pulling the wool over other people’s eyes.”

Pundits last week also were busy analyzing bilked investors. A psychiatrist who studies investor behavior told the Washington Post that Madoff’s clients may have almost literally become intoxicated by the regular returns.

“It’s like a slot machine that pays you a little each time,” said Dr. Richard Peterson. “Over time you kind of fall in love with that machine. You’ll actually have the hormones and strong attachment and bonding. You trust it. You want more satisfaction from these gains.”

In related news, thieves last week did what Madoff likely won’t: returned some stolen goods. According to the Palm Beach Post, crooks stole a $10,000 statue from Madoff’s Florida estate. They left it near the Palm Beach Country Club, where Madoff was a member, with a note: “Bernie the Swindler, Lesson: Return Stolen Property to rightful owners.” The note was signed “The Educators” — likely an allusion to a 2004 German film in which a team of idealistic young people break into the homes of wealthy people, rearranging their furniture in an attempt to shock them into recognizing the extravagances of their lifestyle.

Sources: Washington Post, Jan. 3 — Guardian, Jan. 1 — AFP, Jan. 1 — TIME, Dec. 31, 2008 — Palm Beach Post, Dec. 31, 2008.

For more information, see: Related Newsline story, Dec. 22, 2008 — Related Newsline Commentary, Dec. 15, 2008 — Related Newsline story, Dec. 15, 2008 — Related Newsline Commentary, Aug. 25, 2008 — Related Newsline story, Aug. 25, 2008.

VARIOUS DATELINES
Despite all of the merriment and well wishing, ethical dilemmas didn’t take a holiday last week. Among the top stories:

• There was more high drama in the aftermath of Illinois Gov. Rod Blagojevich’s apparent ethics meltdown: The man Blagojevich finally decided to appoint to the Senate seat vacated by president-elect Barack Obama says he plans to attend his swearing-in ceremony even though Senate leaders say they will refuse to seat him. Roland Burris, however, is regarded generally as nonconfrontational and unlikely to make a scene if he is turned away, according to the Chicago Sun-Times. Blagojevich has been accused by federal prosecutors of trying to sell Obama’s vacated Senate seat to the highest bidder.
• House Ways and Means Committee chairman Charles Rangel encountered more ethics trouble last week after it was revealed that he used campaign funds to pay $1,540 in parking tickets, reports Congressional Quarterly. While it is not illegal to use campaign money for parking fines, notes CQ, the fines “are the latest in a series of revelations about the Ways and Means chairman’s activities that could cause him ethical, political, and public relations headaches.” The House Ethics Committee already is investigating allegations about Rangel’s rent-controlled apartments, failure to pay taxes on rental property, and improper fundraising for a public policy school named after him.
• A civic board in Alexandria, Virginia, has taken a novel approach to making tough budget decisions: The board brought in a professional ethicist. According to the Chicago Tribune, the Alexandria Community Services Board turned to ethicist Michael Gillette to weigh the moral implications of balancing the budget versus delaying implementation of an expensive social services program. Gillette concluded that because the program was new, it was acceptable to delay its implementation in order to uphold previously promised services.

Sources: Chicago Sun-Times, Jan. 3 — Chicago Sun-Times, Jan. 1 — Chicago Tribune, Jan. 1 — Congressional Quarterly, Dec. 30, 2008.

For more information, see: Related Newsline story, Dec. 22, 2008 — Related Newsline story, Dec. 15, 2008 — Related Newsline Commentary, Dec. 15, 2008 — Related Newsline story, Nov. 17, 2008 — Related Newsline story, Sep. 29, 2008.

SANTA CLARA, Calif.
A repeat of the infamous 1960s Milgram experiments — in which unsuspecting subjects showed their willingness to deliver a painful electric shock when ordered to do so by an authority figure — shows that human nature has not changed much, researchers say.

Stanley Milgram’s classic study of human obedience found that about two-thirds of subjects were willing to inflict what they believed were increasingly painful electric shocks when an experimenter dressed in a while lab coat told them to do so, reports CNN. The subjects believed they were part of an experiment involving punishment and learning, and were instructed to deliver shocks to a confederate who masqueraded as the test subject and screamed in mock pain.

Some participants in the Milgram studies, notes the BBC, continued to give shocks to the confederate even after the screams stopped and there was no response, indicating that the subject was either unconscious or dead.

A new study, conducted at the University of Santa Clara in California and set for publication in American Psychologist, replicated the earlier study with certain conditions less stressful to the unwitting test subjects.

In spite of new procedures that allowed the subjects more latitude in ending the administration of the bogus shocks, the vast majority of the 29 men and 41 women tested were willing to administer painful shocks, reports Discover Magazine.

About 70 percent continued the shocks up to 150 volts and were willing to go higher.

The Chronicle of Higher Education notes that the underlying pattern of the subjects remained the same as a half-century ago: When figures of authority take responsibility for a decision to hurt other people, people willingly follow them.

Sources: Chronicle of Higher Education, Dec. 28, 2008 — CNN, Dec. 19, 2008 — BBC, Dec. 19, 2008 — Discover, Dec. 19, 2008.

For more information, see: Related Newsline story, Aug 25, 2008 — Related Newsline story, June 23, 2008 — Related Newsline story, May 12, 2008 — Related Newsline story, Jan. 2, 2007 — Related Newsline Commentary, Dec. 19, 2005.

LONDON
It’s time to craft an ethics code governing the use of robots as caregivers, according to an artificial-intelligence expert from the United Kingdom.

Noel Sharkey of the University of Sheffield says he is concerned that robots increasingly will be put in sensitive positions where they may become the primary contact for children and the elderly, reports the technology network CNET.

Writing in the current issue of Science, Sharkey cautions: “Because of the physical safety that robot minders provide, children could be left without human contact for many hours a day or perhaps for several days, and the possible psychological impact of the varying degrees of social isolation on development is unknown.”

According to an analysis from Wired, personal service robots — 5.8 million in use and counting — are more common now than industrial robots.

More than a dozen companies, based primarily in Japan and South Korea, currently make robotic companions for children, according to London’s Independent. Some can be trained to recognize children’s faces and alert parents in the event of an emergency.

InformationWeek notes that robots also are becoming common in eldercare. Major manufacturers currently are marketing automatic feeding robots and medicine-reminder robots.

Sharkey adds that robots also are making significant inroads in law enforcement and the military, creating an entirely new set of ethical dilemmas, many involving robotic technologies for “checking, tagging, and following us.”

Sources: Independent, Dec. 19, 2008 — InformationWeek, Dec. 19, 2008 — Wired, Dec. 18, 2008 — CNET, Dec. 18, 2008.

For more information, see: Related Newsline story, May 5, 2008 — Related Newsline story, Mar. 3, 2008 — Related Newsline story, Feb. 18, 2008 — Related Newsline story, Nov. 26, 2007 — Related Newsline story, Aug. 13, 2007.

VARIOUS DATELINES
Questions about the role and conduct of the press were raised in the international media last week. Among the stories:

• Connecticut lawmakers are considering a state bailout to save a local newspaper, but some are skeptical, arguing that government aid to the press crosses an ethical line. Reuters reports that the Bristol Daily Register is about to collapse under a mountain of debt, and some state legislators want to use government money to save it, saying that the city of 61,000 people is largely ignored by big media in neighboring Hartford. But as Reuters notes: “Relying on government help raises ethical questions for the press, whose traditional role has been to operate free from government influence as it tries to hold politicians accountable to the people who elected them. Even some publishers desperate for help are wary of this route.” Or as a journalism professor interviewed by Reuters put it: “You can’t expect a watchdog to bite the hand that feeds it.”
• New media technologies offer great promise, but also pose a considerable risk, says one of the nation’s premier media ethicists. The Poynter Institute’s Bob Steele, writing in the Nieman Watchdog, a Harvard University press-and-society publication, argues that the race to garner page views has caused an erosion of journalism’s core ethical values. “The blogs, Tweets, social networking, citizen-submitted content, and multimedia storytelling that are the tools and techniques of the digital era offer great promise,” Steele writes. “They also, when misused, present considerable peril.” As examples, Steele points to the stock tumble caused by an erroneous report on a user-generated news website claiming that Apple CEO Steve Jobs had suffered a major heart attack. He also cites the “ethically problematic” practices associated with live-blogging tools, such as Twitter, which was used by the Rocky Mountain News to generate widely criticized on-the-spot coverage of a three-year-old boy’s funeral.
• An independent group that monitors media in India and Pakistan has concluded that coverage of the November 2008 Mumbai terror attacks was often reckless and irresponsible. The South Asia Media Commission said little care was taken to verify facts, coverage was biased, and reporters showed little sensitivity toward victims, according to a report from the Press Trust of India. In the immediate aftermath of the attacks, critics charged that the nonstop coverage by dozens of television channels had spread rumors, encouraged publicity-seeking journalists, and put police at a disadvantage by leaking tactical information during live telecasts.

Sources: Reuters, Dec. 31, 2008 — Press Trust of India, Dec. 31, 2008 — Nieman Watchdog, Dec. 25, 2008.

For more information, see: Related Newsline Commentary, Dec. 8, 2008 — Related Newsline story, Dec. 8, 2008 — Related Newsline story, June 16, 2008 — Related Newsline story, Apr. 28, 2008 — Related Newsline story, Nov. 13, 2007.

EAST LANSING, Mich.
Credit card companies have deep ties with college campuses, forging profitable relationships that have raised ethics questions, according to a report from the New York Times.

Times reporter Jonathan Glater cites Bank of America’s marketing arrangement with Michigan State, noting that the bank has an $8.4 million, seven-year contract with the university, which gives the company access to student names and addresses as well as the use of the university’s logo.

The more students who sign on to credit card offers, the more money the university gets from the deal, according to the report.

Glater writes: “Hundreds of colleges have contracts with lenders. But at a time of rising concern about student debt — and overall consumer debt — the arrangements have sounded alarm bells, and some student groups are starting to push back.

“The relationships are reminiscent of those uncovered two years ago between student loan companies and universities. In those, some lenders offered universities an incentive to steer potential borrowers their way.”

According to Glater, New York congresswoman Carolyn Maloney, who conducted hearings into campus credit-card marketing, has recommended that sharing student information with banks be outlawed.

University officials interviewed by the Times counter that such agreements are within the letter of the law and provide revenue for scholarships and other programs, maintaining that they work with lenders to provide education about the responsible use of credit.

Source: New York Times, Jan. 1.

For more information, see: Related Newsline story, Dec. 22, 2008 — Related Newsline story, Aug. 11 2008 — Related Newsline story, June 9, 2008 — Related Newsline story, Feb. 25, 2008 — Related Newsline story, Aug. 13, 2007.

From Junior Achievement and Deloitte:

“While today’s teens are learning the Three ‘Rs’ of Reading, Writing and Arithmetic in school, new research shows that many are justifying violence to practice a fourth — Revenge. In a youth culture where violence is often believed to be acceptable, these and other findings not only present disturbing implications for school safety, but for the workplace as well, say experts.

“A new poll of 750 teens from Junior Achievement and Deloitte and conducted by Opinion Research shows that more than one-in-four teens (27 percent) think behaving violently is sometimes, often or always acceptable. More students thought violence was acceptable than was cheating (19 percent), plagiarizing (10 percent) or stealing (3 percent). And fully 20 percent of respondents said they had personally behaved violently towards another person in the past year, and 41 percent reported a friend had done so.

“When the teens who agreed that violence was acceptable were asked more specifically about rationale for such behavior, most noted self-defense (87 percent) and to help a friend (73 percent). However, more than a third said violence was acceptable to settle an argument (35 percent) and for revenge (34 percent). Other justifications were dislike of the person who is the target of the violence (22 percent), to gain respect (21 percent), peer pressure (14 percent), and simply for ‘the thrill’ of it (10 percent). Of considerable concern is that more than three-fourths (77 percent) of those who think violence is acceptable also consider themselves ethically prepared to enter the workforce….

“The poll also shows that teens feel more accountable to themselves (86 percent), than they do to their parents or guardians (52 percent), their friends (41 percent) or society (33 percent)….

“‘The results of the survey reveal considerable ethical relativism among teens and raises questions about their ability to make good decisions later in life,’ said Sean C. Rush, President and Chief Executive Officer of JA Worldwide. We’re understandably concerned about these results but recognize that they do point to a major learning opportunity.’

“The survey results also show that many teenagers are lacking role models. Only about half (54 percent) cite their parents as role models. Most of those who don’t cite their parents as role models are turning to their friends, or they said they didn’t have a role model….

“‘Teens need training in ethical decision-making, practical tools and behavioral role models that help them understand not only how to make the right choices, but how those choices will impact their personal success and the success of the organizations they join,’ said Ainar D. Aijala, global managing partner, Consulting, Deloitte and chairman of the board, JA Worldwide….”

For the full press release from Junior Achievement and Deloitte, Dec. 15, 2008, click here.

Editor’s Note: Deloitte is a corporate sponsor of Ethics Newsline®.