Individuals Causing the 2008 Housing Crisis Receive No More Than a Slap on the Wrist

Following the 2008 housing crisis, several of the banks involved paid large settlement fines. JPMorgan Chase was one of those banks. The Justice Department used evidence from an anonymous whistleblower in the prosecution, but until recently the whistleblower remained anonymous. Matt Taibbi recently released an article in Rolling Stone describing why the whistleblower, Alayne Fleischmann, has gone public with what she knows. Ironically, the Justice Department wasn’t committed to bringing “justice” to those individuals who contributed to the fall of the economy through fraudulent activities. In fact, Attorney General Eric Holder said the following:

“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy, and I think that is a function of the fact that some of these institutions have become too large.”

What is the Justice Department doing if they aren’t bringing justice to those responsible for major crimes? When Fleischmann realized that much of what she reported to the SEC and the Justice Department was not being fully pursued, she decided she had to go public with what she knew.

Research Study Suggests That the Culture in the Banking Industry Leads to Dishonesty

Financial Times recently printed an article about a study done by researchers at the University of Zurich which suggested that bankers have a tendency to lie for financial gain. The study used a control group and treatment group of bankers. The bankers in the control group were asked questions about their everyday life (for example, “How many hours of television do you watch per week?”). The bankers in the treatment group were asked questions relating to what they did at work as a banker. They then gave each group a coin, had them toss it ten times, and then had them self-report their results. The participants were told beforehand whether heads or tails would count as a success. If no cheating took place, the average amount of heads compared to tails should have been very close to 50/50 for each group. In the control group this was the case, but the group who had been primed with thinking about their profession as bankers reported 58.2% winning tosses. From these results, the researchers estimate that 26% of the bankers in the treatment group cheated.

Would You Break the Law for $1 Million?

A survey was recently conducted in Korea where participants were asked if they would break the law in order to gain the equivalent of $955,000 (USD). Surprisingly, nearly one in four responded that they would. The study showed that people in their twenties were even more likely to break the law for $1 million (nearly one in three respondents in their twenties said they would). If this holds true throughout the world, we could potentially see more frauds committed as the younger workforce reaches stages in their careers where they have the pressure and opportunity to commit fraud.

Check out the article in the Wall Street Journal and ask yourself the same question – would you break the law for $1 million? Hopefully the number of people who answer yes to this question gets smaller and smaller over time.

The Latest in Detecting Deception

I spend about two and a half weeks in my Fraud Examination class studying how we can detect when someone is being deceptive. I think it's a fascinating area that holds a lot of promise as one of the best things auditors could learn to utilize to detect fraud. If I was king of independent auditing for a day, I would change auditors' requirements to interview for fraud but that is the subject of a future post...

When I teach about detecting deception, I emphasize to my students that non-verbal cues are much less reliable than verbal cues. Some recent research shows that text analysis in verbal cues reveals four patterns in people who are lying. Check out the short, but informative, video below to learn more.

Lie Detector Could Help Stop Doping in Sports

They say a picture is worth a thousand words—and researchers have found a video can be worth even more. A recent article talks about research that was conducted using videos of Lance Armstrong where he denied doping, as well as the video where he finally confessed, taken from the Oprah Winfrey interview (see confession clip below). Researchers put the videos through a lie detector program to see the results.

The videos passed through the lie detector computer program and “revealed consistent patterns of behavior.” When Armstrong lied and denied allegations of doping, the computer detected patterns and revealed that Armstrong was lying. “Among the few, subtle patterns that Armstrong unwittingly repeated when lying were shaking his head, blinking and pressing his lips together.” When Armstrong confessed, the computer did not detect these same patterns.