Market Overview

Floyd Norris' Hypocrisy: Elite Fraud is More Dangerous to Detect than to Commit

Share:

 

Floyd Norris, who I once respected, has written an interesting column titled “In China, Detecting Fraud Riskier Than Doing It.”  Norris states that China’s hostility to those who expose fraud is so unusual that it is worthy of a column:  “It can be very risky to do things in China that are taken for granted in other countries.”

http://www.nytimes.com/2014/08/29/business/in-china-detecting-fraud-riskier-than-doing-it.html?mabReward=RI%3A6&action=click&pgtype=Homepage&region=CColumn&module=Recommendation&src=rechp&WT.nav=RecEngine

China is different from some other countries.  China has no domestic rule of law and no respect for the rule of law in its dealings with other nations.  The same is true of Russia.  It is important to understand such differences.

But it is even more important to focus on critical commonalities.  “Detecting [elite] fraud [is] riskier than doing it” in every nation including the United States.  The rule in every country is that elite frauds attack those that detect their frauds.  They fight back hard and dirty.  They may kick back harder in China and Russia, but they kick back in every nation.  Countering their attacks on those that detect fraud, therefore, is among the most important tasks in every nation.

Norris Knows that Elites Attack those who Detect Fraud because He Aided those Attacks

Norris knows this rule of retaliation in the U.S. because he personally participated in attacking those who dared to detect likely fraud by the Nation’s most elite banksters.  In late 2006, Norris authored a despicable column obviously fed by SEC flacks that attempted to smear an SEC whistleblower.

http://economix.blogs.nytimes.com/2006/12/05/get-a-job-then-sue-because-you-were-not-hired-earlier/

Norris’ column ignored the substance of SEC enforcement attorney Gary Aguirre’s blowing the whistle when he detected likely elite fraud.  His efforts to detect and investigate elite fraud were squashed by SEC leaders when he dared to ask for authority to question a politically powerful business executive (John Mack, then Morgan Stanley’s CEO) with close political ties to the Bush administration.  The SEC leadership retaliated against Aguirre for protesting his bosses’ decision to shut down the investigation before it was allowed to do any meaningful investigation.  The SEC leadership threatened to seek a criminal prosecution of Aguirre in the hopes of impeding the Senate investigation of Aguirre’s complaints about the SEC. 

http://docs.justia.com/cases/federal/district-courts/district-of-columbia/dcdce/1:2008cv01872/133797/27/0.pdf?1270122163

In important ways, the U.S. is a great deal like China when it comes to the steps that elite frauds, and those like the SEC leadership and Norris who act to protect those elite frauds, attack those who “detect” such frauds and seek to sanction the fraudsters.  In other important ways it is obviously different.  While the Senate successfully protects less than a handful of whistleblowers in any decade, China has no equivalent.  The Senate deserves praise for helping to save Aguirre’s reputation, but as the German saying warns, einmal ist keinmal (“once is never”).  Further, the Senate was unable to save Aguirre’s job or to get the SEC to investigate the elite bank CEO that Aguirre properly wished to investigate.

Norris’ column sided with Aguirre’s bosses, but did so by ignoring the merits and trying to paint Aguirre as an “arrogant” SEC litigator.  The tone of the column is snide and dismissive.  Norris’ message is clear: ignore the elite fraud that Aguirre may have detected because he is a middle-aged employee who should get up each morning and thank the SEC for hiring him, but who instead displays arrogance.  I have no idea, and Norris had no idea, whether Aguirre is arrogant.  I do know, as does Norris, that if “arrogance” is a valid basis for firing litigators then every litigator in the world (and every NYT columnist) could be fired tomorrow.

Norris’ column was obviously planted by the SEC.  It repeats their views on Aguirre’s lack of gratitude that they deigned to hire him – and it is dated December 5, 2006 – the same day Aguirre was testifying before the Senate.  The column was timed by the SEC and Norris to attempt to discredit Norris when he testified.

http://www.finance.senate.gov/newsroom/chairman/release/?id=a53a6f73-f0ce-402e-aea3-e99e8c98b3a1

http://www.judiciary.senate.gov/imo/media/doc/aguirre1_testimony_12_05_06.pdf

Aguirre was vindicated by the Senate investigation, the (second) SEC IG report, and his subsequent legal action for wrongful termination.  A series of SEC senior officials resigned promptly after release of the Senate report.  In response to that vindication, Norris not only refused to apologize for his effort to smear, but continued the effort to smear Aguirre when Patrick Byrne called him out. 

“Because Mr. Aguirre was thoroughly vindicated by an investigation of the United States Senate, I thought it would be interesting to know how Floyd Norris of The New York Times felt about the hatchet job he had written on Mr. Aguirre. Given that by blowing the whistle on his former employer Aguirre had risked fortune, reputation, and perhaps even his freedom, surely a thoughtful, fair-minded journalist at ‘our newspaper of record’ would welcome the opportunity to reflect on his mocking and derisive attack on Aguirre. So I wrote Mr. Norris a short note that contained a link to his December 5, 2006 story, and the simple question, ‘How do you feel about this piece now?’

The response I received from Mr. Norris was instructive:

‘I have read our story on the Senate report, but not the report itself, and that does not change my opinion on Mr. Aguirre. I did not conclude in the blog that he was or was not fired for illegitimate reasons. The Senate thinks he was, judging by the article. The blog item remains accurate, to the best of my knowledge.’

Another New York Times reader emailed Mr. Norris a similar question, and forwarded to me the short response Mr. Norris sent him:

‘And what, precisely did I write about Aguirre that was wrong?’”

http://www.deepcapture.com/wall-street-captures-the-sec/

Norris choose to end his dismissal of Aguirre’s warnings about elite fraud and the SEC’s refusal to investigate elite with this conclusion.

“The S.E.C. has thoughtfully provided an E.E.O.C. judge’s opinion dismissing that case. In it, one S.E.C. lawyer who decided against hiring Mr. Aguirre, told the judge that he found Mr. Aguirre arrogant, adding that he “displayed a sense of entitlement to the position.”

It certainly sounds as if that opinion was correct.”

http://economix.blogs.nytimes.com/2006/12/05/get-a-job-then-sue-because-you-were-not-hired-earlier/

Norris had no reasonable basis for that conclusion.  Had he bothered to learn any of the facts he would have found that Aguirre’s job evaluations by the SEC were exemplary – until he blew the whistle.  At that juncture the SEC’s managers retaliated against him and ginned up its assault on Aguirre that enlisted Norris.  Norris knows that the primary moral and professional failings in his column arise from what he excluded from his column and his willingness to aid and abet the SEC leadership’s attempted smear of Aguirre.  Even as to his smear, Norris had no reasonable basis for making it at the time he wrote his column. 

Norris wrote that the facts did not “change his opinion on Mr. Aguirre.”  Three obvious questions arise from that statement.  First, what “opinion” is he referring to?  Second, how could learning the real facts demonstrating that the SEC ginned up a campaign to smear Aguirre fail to change Norris’ “opinion on Mr. Aguirre” – particularly given Norris’ starring role in aiding and abetting the SEC’s unlawful campaign?  The SEC IG, with the strong support of the Senate, called for the termination of Aguirre’s superiors for their misconduct in the case. 

http://www.finance.senate.gov/newsroom/ranking/release/?id=6bab6f43-e1f0-4cc1-bfd7-3b78244fde7d

http://www.finance.senate.gov/newsroom/ranking/release/?id=68acfb4c-6e81-4e06-afc3-57998e8ffbce

Third, if Aguirre’s only “opinion” about Aguirre is that he felt “entitled” to a job at the SEC – why did Norris write the column and time it to try to discredit Aguirre?  What conceivable news value would such a column have?  If anyone is tempted to accept Norris’ disingenuous response as remotely credible, think of what it means about how desperate Norris was for column ideas.  Here’s how I envision his claim.

“News flash: I, Floyd Norris, a financial columnist for the New York Times, have found an SEC employee to write about.  I have never met or spoken to him, but I’ve decided to write a NYT column about him because I think he feels a sense of entitlement about his job.  Tomorrow I’m writing my column about a CFTC worker who criticizes his boss rather than expressing eternal gratitude.  Wednesday’s column will expose the scandal of an FDIC worker who takes personal phone calls at her desk from her daughter’s child care facility during working hours.”

Obviously, none of these columns would ever be written by a NYT financial columnist and if he did turn in drafts of such proposed columns his editors would reject them and tell him to start doing his job writing financial columns.  But Norris’ smear of Aguirre was published by the NYT even though it is not remotely newsworthy.  That means that Norris’ editors were also willing to publish an obvious smear in order to try to discredit a whistleblower’s Senate testimony about elite fraud, the SEC’s unwillingness to investigate it, and the resultant retaliation by the SEC.

It is over seven years past time for Norris to admit the truth.  He knows “precisely” what he did to Aguirre that was “wrong.”  He worked with SEC flacks to try to smear Aguirre in order to try to discredit Aguirre’s testimony before the Senate.  Mr. Norris: that is “precisely” what you did that was “wrong.” 

It’s bad to be wrong in your judgment of a person you have never met, talked to, read his work, or listened to his views.  It is inexcusable to be part of a smear of a whistleblower.  It is beyond the pale to serve up a planted story for the entity retaliating against the whistleblower who has detected likely elite fraud.  It is reprehensible to time your smear to try to discredit the whistleblower’s Senate testimony.  It is despicable to refuse to apologize for each of these acts after you know you were wrong.   

But it is fall down funny for Norris to write a column decrying those who try to harm whistleblowers who detect fraud.  Norris must lack the gene that makes one hypocrisy-intolerant.  His column on fraud served up an enormous portion of haute hypocrisy.<i> <p> Bill Black is the author of <a href="http://www.amazon.com/Best-Way-Rob-Bank-Own/dp/0292706383">The Best Way to Rob a Bank is to Own One</a> and an associate professor of economics and law at the University of Missouri-Kansas City. He spent years working on regulatory policy and fraud prevention as Executive Director of the Institute for Fraud Prevention, Litigation Director of the Federal Home Loan Bank Board and Deputy Director of the National Commission on Financial Institution Reform, Recovery and Enforcement, among other positions.</i> </p>

 

<p> <i> Bill writes a column for Benzinga every Monday. His other academic articles, congressional testimony, and musings about the financial crisis can be found at his <a href="http://papers.ssrn.com/sol3/cf_dez/AbsByAuth.cfm?per_id=658251">Social Science Research Network author page</a> and at the blog <a href="http://neweconomicperspectives.blogspot.com/">New Economic Perspectives</a>.</i>

 

Follow him on Twitter:   @WilliamKBlack

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

 

Related Articles

View Comments and Join the Discussion!