Felix Salmon

Is Google becoming a key arm of the law-enforcement complex? It certainly seems to be so with respect to art thefts. I first came across this idea back in November, when Bloomberg Markets profiled Jeff Gundlach, who was hit by art thieves in September:

The cerebral Gundlach also gave investigators a tip for solving the crime. He says that while he was at home in his family room, it dawned on him that thieves would do a Google search using his grandmother’s name to find out more about the paintings and how much they might be worth.

Gundlach told the authorities that they should check the Internet to see who might have googled the name Helen Fuchs. He says exactly two such searches were executed: one by him and one by the thieves.

Now, another man has been arrested for art theft, and was found in much the same way:

In their investigation into the art theft, [officials] found that Mr. Istavrioglou had searched the Internet for reports about the robbery after it took place but before the story became news.

Law enforcement officials, it seems, have pretty easy and routine access to Google’s search-history database, and this is surely only the beginning when it comes to sifting through huge amounts of data to find evidence of crimes. The SEC, for one, has had a large data-mining team in place for a good five years now, going through enormous quantities of data to look for signs of suspicious activity.

Even journalists are getting in on the act of using data to uncover criminal activity. The Sun Sentinel, in Florida, managed to obtain a year’s worth of SunPass toll records for cop cars. That meant that they had data on the amount of time it took cops to drive from one toll plaza to the next. All they needed to do then was measure those distances, divide the distances by the time taken to drive that length of road, and come up with an average speed, for cops who were often just commuting to or from their houses, out of their jurisdiction. The result? The Sun Sentinel found “almost 800 cops from a dozen agencies driving 90 to 130 mph on our highways” — in a state where speeding cops have caused at least 320 crashes and 19 deaths since 2004.

Part of the reason why it has taken so long to bring Libor prosecutions is that going through millions of email and IM records, looking for smoking guns, is still a laborious and time-consuming process. But as data mining techniques continue to evolve, and as databases become increasingly unified and tractable, and our lives are lived almost entirely online, it’s going to be harder and harder for criminals not to leave a discoverable data trail — especially opportunistic criminals, who break the law when they’re given a chance, as opposed to more considered criminals, who spend a lot of time plotting a crime before committing it.

It stands to reason, given advances in computer power and given the size of the networks that we all involve ourselves in every day, that the kind of data crunching that used to be solely the domain of places like the NSA and GCHQ is now going to be available to local police forces and even ordinary citizens, including journalists. The privacy implications are profound, of course: millions of innocent people are going to have their personal data combed on a real-time basis, every day. But that seems to be inevitable, insofar as it isn’t already a reality.

Ever since the news broke last week that Hugo Chávez wanted to transport 211 tons of physical gold from Europe to Caracas, I’ve been wondering how on earth he possibly intends to do such a thing.

There are 99 tons already being held at the Bank of England; according to the FT, the plan is to transfer other gold to the Bank of England from custodians such as Barclays, HSBC, and Standard Chartered; then, once it’s all in one place, um, well, nobody has a clue what might happen. Here’s the best guess from the FT:

Venezuela would need to transport the gold in several trips, traders said, since the high value of gold means it would be impossible to insure a single aircraft carrying 211 tonnes. It could take about 40 shipments to move the gold back to Caracas, traders estimated.

“It’s going to be quite a task. Logistically, I’m not sure if the central bank realises the magnitude of the task ahead of them,” said one senior gold banker.

I put the ever-resourceful Nick Rizzo on the task, but he came up with little more: the market in physical gold is tiny, and largely comprised of nutcases. The last (and only) known case of this kind of quantity of gold being transported across state lines took place almost exactly 75 years ago, in 1936, when the government of Spain removed 560 tons of gold from Madrid to Moscow as the armies of Francisco Franco approached. Most of the gold was exchanged for Russian weaponry, with the Soviet Union keeping 2.1% of the funds in the form of commissions and brokerage, and an additional 1.2% in the form of transport, deposit, melting, and refining expenses.

It’s not much of a precedent, but it’s the only precedent we’ve got; my gut feeling is that Venezuela would be do well to get away with paying 3.3% of the total value of the gold in total expenses. Given that the gold is worth some $12.3 billion, the cost of Chávez’s gesture politics might reasonably be put at $400 million or so.

It seems to me that Chávez has four main choices here. He can go the FT’s route, and just fly the gold to Caracas while insuring each shipment for its market value. He can go the Spanish route, and try to transport the gold himself, perhaps making use of the Venezuelan navy. He could attempt the mother of all repo transactions. Or he could get clever.

In the first instance, the main cost would be paid by Venezuela to a big insurance company. I have no idea how many insurers there are in the world who would be willing to take on this job, but it can’t be very many, and it might well be zero. If Venezuela wanted just one five-ton shipment flown to Caracas in conditions of great secrecy, that would be one thing. But Chávez’s intentions have been well telegraphed at this point, making secrecy all but impossible. And even if the insurer got the first shipment through intact, there would be another, and another, and another — each one surely the target of criminally-inclined elements both inside and outside the Venezuelan government. Gold is the perfect heist: anonymous, untraceable, hugely valuable. Successfully intercepting just one of the shipments would yield a haul of more than $300 million, making it one of the greatest robberies of all time. And you’d have 39 chances to repeat the feat.

Would any insurer voluntarily hang a “come get me” sign around its neck like that? They’d have to be very well paid to do so. So maybe Chávez intends to take matters into his own hands, and just sail the booty back to Venezuela on one of his own naval ships. Again, the theft risk is obvious — seamen can be greedy too — and this time there would be no insurance. Chávez is pretty crazy, but I don’t think he’d risk $12 billion that way.

Which leaves one final alternative. Gold is fungible, and people are actually willing to pay a premium to buy gold which is sitting in the Bank of England’s ultra-secure vaults. So why bother transporting that gold at all? Venezuela could enter into an intercontinental repo transaction, where it sells its gold in the Bank of England to some counterparty, and then promises to buy it all back at a modest discount, on condition that it’s physically delivered to the Venezuelan central bank in Caracas. It would then be up to the counterparty to work out how to get 211 tons of gold to Caracas by a certain date. That gold could be sourced anywhere in the world, and transported in any conceivable manner — being much less predictable and transparent, those shipments would also be much harder to hijack.

How much of a discount would a counterparty require to enter into this kind of transaction? Much more than 3.3%, is my guess. And again, it’s not entirely clear who would even be willing to entertain the idea. Glencore, perhaps?

But here’s one last idea: why doesn’t Chávez crowdsource the problem? He could simply open a gold window at the Banco Central de Venezuela, where anybody at all could deliver standard gold bars. In return, the central bank would transfer to that person an equal number of gold bars in the custody of the Bank of England, plus a modest bounty of say 2% — that’s over $15,000 per 400-ounce bar, at current rates.

It would take a little while, but eventually the gold would start trickling in: if you’re willing to pay a constant premium of 2% over the market price for a good, you can be sure that the good in question will ultimately find its way to your door. And the 2% cost of acquiring all that gold would surely be much lower than the cost of insuring and shipping it from England. It would be an elegant market-based solution to an artificial and ideologically-driven problem; I daresay Chávez might even chuckle at the irony of it. He’d just need to watch out for a rise in Andean banditry, as thieves tried to steal the bars on their disparate journeys into Venezuela.

CNBC’s Joe Kernen reports the news in the morning in a fast-paced environment where it’s difficult to be 100% accurate. If you write a book, by contrast, you have the time to make sure you get things right. So it’s good to see that now Kernen is plugging his book, he has no time for baseless factoids. Oh, who am I kidding:

Q: Give us some examples of how you see business people portrayed in the media.

A: There was a study done of TV which looked at hundreds of hours of prime time. You were four times more likely to commit a crime if you were a CEO than if you were a drug dealer or a gang leader.

Does he mean this study, by Ray Surette, author of Media, Crime, and Criminal Justice: Images, Realities and Policies? Here’s what it found:

Hm, no, he can’t mean that study, because it doesn’t show anything like what Kernen is talking about. Businessmen only accounted for 24% of crimes on TV even when you include crimes which were ordered by businessmen but carried out by professional-criminal flunkies. Meanwhile, it stands to reason that 100% of drug dealers on TV commit a crime — since by definition they’re being portrayed as illegally dealing drugs.

So maybe Kernen’s not quoting a study at all, and instead is quoting a half-remembered 1979 polemic by — wait for it — Ben Stein. Cecil Greek summarizes:

Ben Stein wondered why prime time crime consisted almost exclusively of white upper-class violence. After watching thousands of hours of TV crime shows, he reported never to have seen a major crime committed by a poor, teenage, black, Mexican, or Puerto Rican youth, even though in reality they account for a high percentage of violent crime.

Most likely, Kernen’s just quoting something somebody told him at dinner one evening, and which sounded too good to fact-check. After all, that’s the way that CNBC works. You just put a lot of shouty people on the TV saying things of dubious coherence, sit back, and enjoy the cacophony.

Kernen works in a world where ratings are more important than accuracy, and he’s just carrying that philosophy over to the book-publishing business. I doubt that his publishers, the “dedicated conservative imprint” Sentinel, mind in the slightest.

We’ve heard a fair amount about the human toll of the subprime crisis — although, frankly, not enough. So this story deserves wide play: Manuel Lopez and Christina Garcia, and their 12-year-old son Christian Garcia, died in a grisly fire Monday morning, because the building they lived in was full of illegally built walls which blocked access to the fire escape. Who was responsible for looking after the building and making sure it was up to code? The message I get from the NYT‘s Jim Dwyer is that it’s a Dallas company called Vericrest Financial.

The insouciance of Vericrest, here, is downright breathtaking:

Did Vericrest take care of the building while it was in foreclosure, or even know that it was supposed to?

“Vericrest is not going to comment,” a spokesman said.

The backstory, as pieced together by Dwyer, is that the three-family building at 2321 Prospect Avenue went into strategic default long ago, after the owner, Domingo Cedano, who bought the building with no money down, stopped making his mortgage payments.

Under New York state law, when that happens, and once foreclosure proceedings begin, the lender becomes responsible for the property. In this case, the loan is owned by a trust, Bank of New York Mellon is the trustee, and the bank in turn has hired Vericrest to handle the loans in the trust.

Here’s what Vericrest says about itself:

Vericrest Financial, Inc. is a privately held, premier financial services company primarily engaged in the servicing of residential mortgage and consumer finance loans. Vericrest Financial, Inc. is led by a seasoned team of financial services industry professionals who have over 20 years of experience in working with customers and investors. Our business operations are located in Oklahoma, New Jersey, California and Texas.

Vericrest Financial, Inc. is dedicated to providing superior customer care and maintaining the highest level of quality, integrity and trust that our customers, employees, investors and other business associates expect and deserve. Vericrest Financial, Inc. is regulated by numerous state and federal regulatory agencies and holds the requisite licenses to service mortgage and consumer finance loans and to conduct other aspects of its business in those states where it does business.

It’s fair to assume that Vericrest, as the holder of all the requisite licenses to do what it does in New York state, is indeed cognizant of any legal obligation it had to maintain 2321 Prospect Avenue, since it was “abandoned by the mortgagor but occupied by a tenant.” Assuming that somewhere along the line foreclosure proceedings were initiated, the law is clear:

For the purposes of this section “maintain” shall mean keeping the subject property in a manner that is consistent with the standards set forth in the New York property maintenance code… provided, however, that if the property is occupied by a tenant, then such property must also be maintained in a safe and habitable condition.

What we’re seeing here is a particularly tragic instance of something that has been happening a lot over the course of the subprime crisis — the way in which mortgages, once they become transmogrified into purely financial instruments, lose all connection to real-world buildings and humans. When my credit union makes a mortgage loan, we know the borrower and we know the building and we have relationships there. When Vericrest Financial takes on responsibility for loans in an investment trust, there’s no relationship at all, and there’s precious little incentive for the company to send someone out to the Bronx to find out what it’s responsible for.

If the law was indeed broken by Vericrest in this case, I hope that it and its principals face criminal prosecution. Only that will make these “premier financial services companies” wake up and realize what their real-world responsibilities can mean.

John Gapper makes a good point: management consultants in general, and McKinsey consultants in particular, have made their entire business out of exploiting the moral grey zone surrounding confidential information.

The reason you hire McKinsey is that its consultants have seen strategic business issues like yours before, and therefore might have developed good insights into how to approach them. But the reason they’re familiar with those issues is that they’ve been given highly confidential information about your competitors. So when you hire McKinsey you’re essentially trying to acquire, for a very high hourly fee, the kind of corporate intelligence that can only be built up through long exposure to highly-sensitive commercial information.

Here’s Gapper on McKinsey:

The accumulation and sharing of privileged knowledge is integral to how it works…

The calculation every client makes is, in the words of Christopher McKenna, a professor at the Oxford university’s Saïd Business School who studies professional services firms, that “consultants will carry information in and information out. The client has to decide which of those flows is worth more.”

Indeed, one of the main reasons companies hire consultants is to make sure they do not fall behind what their competitors are doing – in return for parting with their own secrets, they gain access to their rivals’ suitably disguised “best practices”. The consultant is a broker who attempts to amass so much knowledge that each company has to hire him, no matter how uncomfortable that feels.

In this sense, a management consultant is a bit like an art dealer, or anybody else who traffics in valuable information asymmetries. The consultant knows more than the client, when it comes to strategic issues within the industry in question. If the client wants access to that knowledge, he has to open his own kimono to get it, thereby putting the consultant at yet more of an information advantage.

For pretty much Rajat Gupta’s entire career, then, he was trading in information that he obtained in confidence by dint of his position. When it comes to corporate intelligence, management consultants are pretty much unique in this regard: while other professionals like lawyers and accountants certainly encounter a great deal of confidential corporate information, they don’t trade in it in the same way — no one ever feels the need to hire Ernst & Young just because they audit a major competitor. The only profession which might come close to consultants, in this regard, is M&A bankers, and maybe a handful of extremely senior lawyers like Rodge Cohen.

None of this remotely explains or excuses what Gupta is accused of doing, of course. But as Gapper notes, there’s a long history of management consultants violating the spirit of the confidentiality agreements they enter into — he tells the tale of Booz Allen Hamilton’s John Burns taking lots of IBM knowledge with him when he took a job as president of the computer maker’s fiercest rival.

In any case, McKinsey can and should find itself in serious reputational jeopardy here. Gapper concludes his column portentiously, saying that “McKinsey must devoutly hope that there is no third man” in addition to Gupta and Anil Kumar, the McKinsey partner who has already admitted giving confidential information to Raj Rajaratnam.

And, predictably, it now looks as though there is just such a third man after all. Three McKinsey consultants all channeling confidential information to a single hedge-fund manager who wasn’t even a client? That’s not bad apples, it’s a culture of corruption. At this point it’s unimaginable that it wasn’t happening elsewhere as well.

Andrew Ross Sorkin examines the weirdnesses surrounding the Rajat Gupta case today, and comes to the conclusion that the government “appears” not to have recorded any of Gupta’s phone calls after all. That’s a reversal from what things looked like on Friday, but the one thing we can be sure of in this case is that the whole thing is very murky.

Sorkin also raises the question of criminal charges:

Given the seriousness of the claims — insider trading by an executive who had reached the upper echelons of corporate America — why not bring criminal charges against Mr. Gupta? …

Not only has the Justice Department not brought a criminal case, at least not yet, but the S.E.C. decided to bring its case in front of an administrative law judge instead of in a Federal District Court, where a defendant has full discovery rights. The S.E.C. is using a new provision in the Dodd-Frank Act to bring the case this way…

Statistically, it is notable: of the 26 Galleon-related cases the S.E.C. has brought, all have been brought in federal court. None have been brought in front of an administrative judge.

I think the question of discovery rights is a bit of a red herring here: I doubt they’re all that important to Gupta’s defense. And personally I like the fact that the SEC is making use of new provisions in Dodd-Frank. Fully-fledged lawsuits are time-consuming and expensive things to put together, and if it’s easier to bring something in front of an administrative law judge instead, let’s see more of that. I mean, no one has suggested that Gupta will get anything other than a fair trial.

Of course there’s a question as to why Gupta in particular got this treatment, rather than anybody or everybody else. It’s a good question, and I look forward to getting the answer. But someone needs to be first.

More generally, if Gupta is guilty, it’s in the public interest that we be able to convict him. One of the problems with insider trading is that it’s so hard to prove, people do it with impunity. Maybe a few more cases like Gupta’s will help on that front.

Where I disagree with Sorkin is when he says that the SEC case doesn’t make Gupta look “much like a sinner.” Actually, that’s exactly what it makes him look like. It’s true that Gupta might not have made money personally on these trades. But that’s clearly not the only reason he’d pass on information to Rajaratnam. It might, on the other hand, be the reason the SEC is going to an administrative law judge. Maybe they reckon that insider dealing for purposes of showing off is somehow a lesser crime than insider dealing for personal profit. After all, if Gupta had just shown off to Sorkin instead of Rajaratnam, he probably wouldn’t have committed a crime at all.

Update: John Carney reckons that there are tapes, but that the SEC wasn’t entitled to have access to them.

I missed this on Friday:

Prosecutors intend to introduce audiotapes showing that Rajaratnam got inside tips from his friend Rajat Gupta…

Prosectors’ use of wiretaps has been a hallmark of the U.S. hedge fund insider-trading probe, which has resulted in more than two dozen arrests and at least 19 guilty pleas.

Rajaratnam is the central figure in the probe. Prosecutors have said they may present 173 intercepted phone conversations as evidence in the trial.

I find this fascinating, because there’s no indication in the complaint that the phone conversations were recorded at all. There’s lots of information which could have been obtained from phone-company records, about exactly when phone calls were made, what phones they were made from, and how long they lasted. But the big weakness of the complaint seemed to be that it included nothing about the contents of those calls.

Prosecutors of course don’t need to lay out their hand in full when they file their complaint — but if they’re going to come out a few days later and say they have wiretaps, what’s the purpose in keeping that information secret?

It’s possible, I suppose, that those 173 intercepted phone conversations don’t include any of the calls from Gupta, but I doubt it. It’s almost as if the Gupta investigation took place entirely separately from the Rajaratnam investigation, and that only after Gupta was charged could his investigators have access to the Rajaratnam tapes. In any case, it’s all a little odd, to say the least.

John Carney asks why Rajat Gupta might have done what he’s accused of doing:

Gupta ran McKinsey. He sat on the board of Goldman. He is the ultimate insider.

One of the reasons we rarely see insider trading charges against people who have the stature and wealth against Gupta is that insider trading makes so little logical sense for such people. There’s really no reason Gupta should leak confidential information to a hedge fund manager. He doesn’t need money, access, prestige or any favors at all.

If he did tip off his hedge fund manager friend, it was something darker than greed or ambition. It was something close to sociopathic narcissism—perhaps a belief that he was somehow above the law, immune to the rules that govern the rest of us.

“Sociopathic narcissism” is one way of putting it, but I think there’s something very human here. And John and I see it every day, at CNBC and Reuters: reporters get phoned up by very rich and important individuals, and get told information which can’t conceivably benefit the person doing the leaking, except psychologically. It doesn’t matter how rich or how important you are, the idea of being able to show off like that — to demonstrate that “I know something you don’t know”, to be cultivated and praised and effusively thanked — is very appealing.

Gupta, if he did give inside information to Raj Rajaratnam, wasn’t doing it for the money. He was doing it to feel important, to get the respect of his friend, to demonstrate just how plugged in he was to some of the most important decisions being made at the height of the financial crisis.

The moral of this story, then, is that if you ever feel that human need for validation and need to unburden yourself of a valuable secret, make sure you phone a journalist, rather than a hedge-fund manager. That’s not illegal, and it’s just as gratifying.

Back in April of last year, I was indignantly informed by Rajat Gupta’s PR people that he wasn’t being investigated by the SEC, just examined. “This is an important distinction,” they told me. Well, it seems that either the examination subsequently turned into an investigation, or else that the distinction wasn’t that important after all:

The SEC’s Division of Enforcement alleges that Rajat K. Gupta, a friend and business associate of Rajaratnam, provided him with confidential information learned during board calls and in other aspects of his duties on the Goldman and P&G boards. Rajaratnam used the inside information to trade on behalf of some of Galleon’s hedge funds, or shared the information with others at his firm who then traded on it ahead of public announcements by the firms. The insider trading by Rajaratnam and others generated more than $18 million in illicit profits and loss avoidance. Gupta was at the time a direct or indirect investor in at least some of these Galleon hedge funds, and had other potentially lucrative business interests with Rajaratnam.

The insider dealing seems to have been pretty blatant: minutes or even seconds after getting off board conference calls with Lloyd Blankfein, Gupta would pick up the phone and call Rajaratnam, who would then make huge trades in Goldman stock:

A Special Telephonic Meeting of the Goldman Sachs Board was convened at 3:15 p.m. on September 23, during which the Board considered and approved a $5 billion preferred stock investment by Berkshire in Goldman Sachs… Gupta participated in the Board meeting telephonically, staying connected to the call until approximately 3:53 p.m. Immediately after disconnecting from the Board call, Gupta called Rajaratnam from the same line. Within a minute after this telephone conversation, at 3:56 p.m. and 3:57 p.m., and just minutes before the close of the markets, Rajaratnam caused the Galleon Tech funds to purchase more than 175,000 additional Goldman Sachs shares…

Gupta dialed into the October 23, 2008, Board meeting around the time it was scheduled to start and remained on the call until 4:49 p.m. Just 23 seconds after disconnecting from the call, Gupta called Rajaratnam… The following morning, just as the financial markets opened at 9:30 a.m., Rajaratnam… explained that Wall Street expects Goldman Sachs to earn $2.50 per share but that Rajaratnam had heard the prior day from a member of the Goldman Sachs Board that the company was actually going to lose $2 per share.

It wasn’t just Goldman, either: the SEC complaint says that Gupta did substantially the same thing with inside information about P&G, where he was also on the board.

This is just a civil complaint at this time, but if the SEC wins I fully expect criminal charges to be forthcoming. And the question must be asked: is it fair to blame Goldman for hiring Gupta to its board? I’m not sure about that. On the one hand, it’s impossible to catch all criminal tendencies of potential board members. On the other hand, Goldman historically didn’t seem to care much about its board, which seems to have existed largely to rubber-stamp the decisions of management. I think it cares more now, however. It’s learned its lesson.

Update: Gupta’s counsel has released a statement.

Statement of Gary Naftalis, Counsel for Rajat Gupta

The SEC’s allegations are totally baseless. Mr. Gupta’s 40-year record of ethical conduct, integrity, and commitment to guarding his clients’ confidences is beyond reproach. Mr. Gupta has done nothing wrong and is confident that these unfounded allegations will be rejected by any fair and impartial fact finder. There is no allegation that Mr. Gupta traded in any of these securities or shared in any profits as part of any quid pro quo. In fact, Mr. Gupta had lost his entire $10 million investment in the GB Voyager Fund managed by Rajaratnam at the time of these events, negating any motive to deviate from a lifetime of honesty and integrity.

Rupert Murdoch is one of the most successful businessmen in the world. But his company is being buffetted hard by ethics scandals — phone hacking in the UK, and Roger Ailes allegedly suborning perjury in the US. It’s right and proper this should be the case: the allegations are extremely serious, and involve people very high up in the corporate structure. News Corp might still carry its founder’s aggressive and entrepreneurial DNA, but that’s no excuse, and in any case there are lots of aggressive entrepreneurs who never commit these kind of crimes.

James Altucher isn’t one of them. An admitted criminal, he posted “10 Confessions” yesterday, including these:

6) In a year I won’t specify but more than five years ago I had a surefire technique for breaking into just about anyone’s email. Anyone who was potentially a threat to my business at the time had their emails read by me. And if they were really disruptive to my business I would disrupt their emails enough that they never bothered me again.

8 ) I had a car accident when I was 18 years old. I ran a redlight and almost killed someone. In the court case the lawyer encouraged me to lie and say the brakes didn’t work. So I did.

9) When I was at HBO I was helping to decide which companies would do which websites within the company. I had started a company on the side that was making websites for entertainment companies. I hired my own company in almost every instance.

These crimes are just as serious as those being alleged at News Corp. Hacking email is worse than hacking voicemail: Altucher didn’t just read his rivals’ email but also “disrupted” it, whatever that means. Perjury is worse than suborning perjury. As for self-dealing, it turns out that Murdoch has been accused of that, too, again in a less egregious manner.

If I were ever found to have hacked someone else’s email in an attempt to gain an advantage over the competition, Reuters would quite rightly fire me on the spot. And my crime would in no way be absolved if Reuters found out through me confessing to such a thing in public. Someone who’s honest about his criminal behavior is still a criminal.

In the comments to his post, Altucher says that his crimes “helped me ultimately to look forward and be a better person,” whatever that’s supposed to mean. His readers are lapping it up: one of them writes that “Your blog has skyrocketed to among my top 10 within 3 weeks of subscribing. Mostly because of how insanely honest you are.” Altucher replies, without any visible sense of irony, “thanks. I’m afraid that honesty is a scarce quality in the financial community.”

Oh, and he helpfully informs another commenter what the statute of limitations is “for most federal crimes.”

It’s common to see people like Altucher fall back on the “everybody does it” argument in cases like this — Altucher’s basically saying that all entrepreneurs behave this way, and he’s just being more honest about it. I don’t believe him.

There’s also the “let he who is without sin” defense — essentially saying that no one can criticize what Altucher did unless they have never committed any kind of crime themselves. That’s just silly — but I do feel comfortable saying I’ve never done anything like this. Run a red light on my bike? Yes, I’ve done that from time to time. Lied under oath? Hacked into e-mail? No. Maybe that helps explain why I’ve never started a company, but I wouldn’t want to ever start a company if such flexible morals were in any way necessary.

The fact is that white-collar criminals are, in general, incredibly good at deluding themselves that they’re good people, even when they clearly aren’t. The classic example being Bernie Madoff:

He can’t bear the thought that people think he’s evil. “I’m not the kind of person I’m being portrayed as,” he told me…

He said to me, “I am a good person.” …

“Does anybody want to hear that I had a successful business and did all these wonderful things for the industry?” he continued. “And got all these awards? And so did my family? I did all of this during the legitimate years. No. You don’t read any of that.” …

He sees himself at this stage as a kind of truth-teller…

Bernie Madoff is still keeping his own moral ledger, adding things up in his own way, telling himself that someday, he’ll come out ahead.

The point here is that self-forgiveness is incredibly close to self-delusion. Altucher is currently basking in the attention of people who are reading his confessional blog entries in a fascinated manner, much as they might read a crime-filled memoir. But that doesn’t mean he’s forgiven.

In one of Altucher’s last FT columns, he wrote this:

My friend told me: “Sometimes you confuse friendships and business. You need to stop that.” Then he added: “Look into the mirror and ask yourself if you are a trustworthy person. If you can do that three days in a row then let me know and we’ll get together.”

We haven’t spoken since.

The obvious message here is that Altucher isn’t trustworthy. But the subtler message is that so long as you’re trustworthy in friendship, you don’t need to be trustworthy in business. I will never believe that to be true. And I certainly wouldn’t ever trust Altucher if he proposed doing business with me.

Update: Altucher responds in the comments. After calling this post “grossly inappropriate and unprofessional”, he adds:

All of these things I wrote about, mentioned in Felix’s article, are 15-35 years ago or more. Not sure where your anger is at, Felix. You would be hard-pressed to find anyone professionally or personally who has a single complaint against me.

Update 2: As a tipster reminds me, Altucher reckons that maybe insider trading should be legal. Which would be handy indeed for anybody with the ability to hack into others’ email accounts.

Update 3: Altucher has now taken the post down.

Update 4: Commenter Bill Andivey presents the James Altucher rap.

M Schuler of Colorado leaves a blistering comment on my post about Martin Erzinger, the Morgan Stanley broker who bought his way out of a felony charge. It’s required reading for anybody who is inclined to believe Erzinger’s defense, that he fell asleep at the wheel, drifted off the road, and never had a clue that he’d hit anybody.

It’s also required reading for anybody who still lets Martin Erzinger or Morgan Stanley manage their money. Erzinger’s behavior is unconscionable, and Stanley’s continued employment of him is a massive blot on the firm’s reputation.

In any case, here’s the meat of the comment: 18 questions for Martin Erzinger. I very much doubt he’ll ever attempt to answer them.

1. Is it reasonable to believe that less than 10 minutes after completing a workout at your club you would fall asleep in the middle of the afternoon while driving your car?

2. Is it reasonable to believe that you would be suffering from sleep deprivation caused by sleep apnea to such an extent that this deprivation would cause this mid-afternoon narcolepsy?

3. Is it believable that this malady was not “diagnosed” until a week after the accident?

4. Is it believable that the “diagnosis” itself says “the patient “may have developed sleep apnea around the time of the accident”?

5. Is it believable that a qualified doctor would allow the patient to continue driving (thus risking his own liability and medical license) after such a serious accident?

6. Is it believable that you would remain asleep after hitting a cyclist, leaving the road, driving over two hundred and sixty feet through terrain rough enough to tear the bumper off your brand new car?

7. Is it believable that you were (as you testified in court) aware that the car came to rest on a steep angle and yet still be “dazed or asleep”?

8. Is it believable that upon coming to rest your body would not be hyperaware due to the over whelming amount of adrenaline coursing through your veins?

9. Is it believable that upon becoming aware that you had driven off the road over rough terrain in a brand new $100,000 plus Mercedes Benz, you would not get out of the car to inspect it for damage prior to driving out of the ditch and onto the road?

10. Is it believable that you would try to reenter the highway without looking behind you for oncoming traffic?

11. Is it believable that such a glance over your shoulder would not reveal the cars stopped across the highway at the point of your departure from the road and the body of the cyclist you hit lying in the road less than 90 yards behind you?

12. Is it believable that “an honest man” would not have any concern for damage he might have caused while “asleep” while driving”?

13. Is it believable that if you were going to call for a tow for your disabled car, that you would not call while the car was in the ditch, but would drive it out of the ditch, risking further damage, and proceed to drive over three miles to hide behind an abandoned Pizza Hut before calling for a tow?

14. Is it believable that an “honest man” would say he had called police when there is no record of such a call in the police call log nor on his cell phone records?

15. Is it believable that an “honest man” would tell Onstar not to use the email address they had on file for him (which was correct) but to use his wife’s email address?

16. Is it believable that an “honest man” would have his company’s employment attorney contact the District Attorney in order to attempt to influence the entering of a felony “due to the effect on his job”?

17. Is it believable that, knowing you had severely injured the son-in-law of a friend, you never visited the injured cyclist, never admitting hitting him? (In court you said “I’m sorry this happened to you”.)

18. Is it believable that an “honest man” would not notify the Security and Exchange Commission, as required by law, that he was charged with a felony until ordered to do so by a judge over 180 days after the accident?

Writes Schuler:

These are only a few of the questions that should have plagued the District Attorney prior to unfairly reducing a felony charge against Marty Erzinger to a couple of misdemeanors.

If you find the answers to these questions as unbelievable as I do, you must conclude that neither the District Attorney nor Mr. Erzinger could meet the reasonable standard of an honest man.

I, for one, would never want this man in charge of my money, nor any firm which happily continues to employ him.

Remember Martin Erzinger, the Morgan Stanley broker who bought his way out of a felony charge? He’s been sentenced now—a year’s probation, and 45 days of charity work. (Some people do that kind of thing voluntarily, and don’t consider it a punishment at all.) And Al Lewis has a magnificent column on the case, which uncovers an interesting twist: Erzinger’s victim, Steven Milo, is the son-in-law of Tom Marsico. Yes, that Tom Marsico, the one with $55 billion in assets under management.

Mutual fund magnate Tom Marsico was at the Vail Valley Medical Center on July 3, tending to his son-in-law, Dr. Steven Milo, who’d been hit by a black, 2010 Mercedes while bicycling…

Into the ER rolls Martin Erzinger, a wealth adviser who oversees more than $1 billion in accounts at Morgan Stanley Smith Barney in Denver.

Erzinger says hi to [Marsico's wife] Cydney.

“Marty and I have been acquaintances for some 20 years,” Marsico explained. “I said, ‘Geez, Marty, is there anything I can do for you? He said, ‘Oh, no, I’m just in for some preliminary tests.’”

Erzinger was in and out in 20 minutes, Marsico recounted: “He checked out just fine.” But Marsico’s mind raced. Black Mercedes? Erzinger? “I was putting two and two together and I thought, ‘Oh, God. No. This can’t be.”

The Marsico connection underlines why Milo was naturally more interested in justice than in money, and why it’s unconscionable that DA Mark Hurlbert would ever suggest—as he did, when he dropped the felony charges—that “justice in this case includes restitution and the ability to pay it.”

Milo is going to suffer greatly for the rest of his life as a result of Erzinger’s actions, but Erzinger’s future income isn’t going to help him. Instead, Milo will have to life with the knowledge that his assailant, who left him to die on the side of the road, not only avoided jail, but even blamed “new-car smell” in his attempt to duck responsibility for his actions.

Erzinger should be in jail right now, rather than managing hundreds of millions of dollars of other people’s money. I hope his clients drop him—and that other Morgan Stanley clients, too, move their money elsewhere. Perhaps to Marsico Capital. I can’t see how anybody would want to park their money with a firm which continues to pay Martin Erzinger millions of dollars.

One of the main contributing factors to the financial crisis was the feeling of impunity and omnipotence which pervaded Wall Street. No matter how egregious their behavior, financiers knew that they would end up wealthy and comfortable. That, in turn, made it much easier to overcome their natural risk aversion.

Jon Hendry now points me to a very shocking real-world (non-financial) example of this. Martin Joel Erzinger is a star broker at Smith Barney, overseeing over $1 billion in assets for “ultra high net worth individuals, their families and foundations”. On July 3, Erzinger was driving his black Mercedes in Eagle, Colorado, and ran over a cyclist — New York physician Steven Milo — from behind:

Milo suffered spinal cord injuries, bleeding from his brain and damage to his knee and scapula, according to court documents. Over the past six weeks he has suffered “disabling” spinal headaches and faces multiple surgeries for a herniated disc and plastic surgery to fix the scars he suffered in the accident.

“He will have lifetime pain,” Haddon wrote. “His ability to deal with the physical challenges of his profession — liver transplant surgery — has been seriously jeopardized.”

Erzinger immediately drove away from the scene of the crime, eventually stopping in a parking lot on the other side of town, where he called the Mercedes auto assistance service and asked that his car be towed.

This kind of egregious hit-and-run is, obviously, a very serious crime. Milo is incredulous at the suggestion from Erzinger’s attorneys “that Erzinger might have unknowingly suffered from sleep apnea”, and wants Erzinger to be charged with a felony. Justice must be served: the case “has always been about responsibility, not money”, he wrote to DA Mark Hurlbert.

Yet Hurlbert, looking at Erzinger’s wealth, decided that the case really was about the money after all:

“The money has never been a priority for them. It is for us,” Hurlbert said. “Justice in this case includes restitution and the ability to pay it.”

Hurlbert said Erzinger is willing to take responsibility and pay restitution.

“Felony convictions have some pretty serious job implications for someone in Mr. Erzinger’s profession, and that entered into it,” Hurlbert said. “When you’re talking about restitution, you don’t want to take away his ability to pay.”

In other words, Erzinger has bought his way out of a felony charge, over the strenuous objections of his victim; it’s very unlikely that online petitions will do any good at this point. Just another thing to add to the list of things that money can buy, I suppose.

April 2 was meant to be a great day in the history of sleazy free-credit-report websites like Ben Stein’s employer Freescore. A new FTC rule came into effect (read all 22 pages of it here), forcing all such websites to have a huge notice across the top of every web page, saying that AnnualCreditReport.com is the ONLY authorized source for credit reports under federal law, and providing a prominent link to this page.

Yet here we are on April 5, and Freescore.com has no such disclaimer. Neither does CreditReport.com. And the biggest site of them all, FreeCreditReport.com, has no such notice either — but instead of simply ignoring the law, like its competitors, it’s trying to find a loophole. Instead of the notice, there’s a box saying this:

Why isn’t my Credit Report free?

Due to federally imposed restrictions it is no longer feasible for us to provide you with a free Experian Credit Report. So for now we’ll be charging you $1 for your Report. But instead of keeping your $1, we’ll donate 100% of the proceeds to Donorschoose.org, an online charity providing funds to classrooms in need.

Underneath that text is the DonorsChoose logo; it’s worth noting that the underlined text, which looks like a hyperlink, isn’t one, and that it’s impossible to click away from FreeCreditReport.com to DonorsChoose.org. I’d also be astonished if DonorsChoose approved of this despicable stunt.

The idea here is that if FreeCreditReport charges $1 and immediately donates that money to charity, then the report isn’t free any more, the name of the site notwithstanding, and therefore the site doesn’t need to carry the FTC-mandated notices. I do hope that the FTC doesn’t allow that kind of nose-thumbing.

But in any case it’s pretty clear that both Freescore.com and CreditReport.com are simply in outright violation of the new laws. I look forward very much to seeing them slapped with some huge fines.

People have many legitimate reasons to have a grievance against their bank. In fact, it’s rare to find someone who hasn’t been extremely angry at their bank at some point. But rarely is there a case as clear-cut as this one, from Aaron Elstein:

Last November, Martin Cadillac, a prominent New York area car dealer, sued Mr. Antonucci and Park Avenue Bank, claiming the bank made “extortionate demands” and engaged in “predatory lending.”

Martin Cadillac alleges that Mr. Antonucci threatened to terminate its credit line, which would have put the dealer out of business, unless it agreed to provide cars to the bank and members of Mr. Antonucci’s family. The dealer gave Mr. Antonucci’s son a $33,000 Land Rover for no charge, two Cadillac SRXs worth around $50,000 each to his wife, and a $75,000 Cadillac Escalade to the bank, according to court documents…

The feds say they began investigating Mr. Antonucci last October, and he resigned as CEO the same month. Earlier this month, regulators seized Park Avenue Bank and transferred its accounts to Valley National Bank.

A banker has a huge amount of power over his borrowers: he can end their credit line and their banking relationship at any time, and since it takes a long time to build up that kind of trust and relationship, such an action can mean the business is forced to fail. If these allegations have any truth to them, Antonucci deserves to go away for a very long time indeed.

Antonucci stands out for another reason, too: he’s one of the very few bankers who was so far beyond the pale that Treasury wouldn’t even give him the $11.3 million of TARP funds that he asked for. It seems that the bailout machine wasn’t completely a rubber stamp, after all.