Mark Nordlicht grew up outside New York City in suburban Long Island and graduated with a degree in philosophy in 1990. With $11,000 saved from his bar mitzvah he started trading commodity options. In the early years, he was fined small amounts on eight occasions, mostly for improper recordkeeping, according to Reuters. This week he was charged with running a $1 billion Ponzi-like fraud at Platinum Partners, the New York hedge fund he ran.
He denies the charge but how does a man like Mr Nordlicht come to have his probity called into question?
It is often assumed that those who are found guilty of the biggest white collar crimes are driven by greed and think that the benefits of their actions far outweigh the risks. But a new book suggests that few of them are that clear cut in their motives.
Eugene Soltes, a professor at Harvard Business School, interviewed nearly 50 white collar criminals over seven years for his book Why They Do It. The more he dug, the more it became apparent that the criminal decisions of these intelligent, sometimes brilliant, people were very often not the result of deliberative cost-benefit calculations at all.
“At the time this was going on, I just never really thought about the consequences,” Scott London, a KPMG executive convicted of insider trading, told Professor Soltes.
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What seems to be critical in driving white collar criminals,the book suggests, is their inability to feel that what they do is wrong or harmful. This is partly because the physical, temporal and psychological distance between white collar criminals and their victims can make their crimes seem abstract. They don’t, after all, break into anybody’s house, the harm they cause is often not uncovered for years and they rarely meet their victims face to face.
It takes only a small step from this mindset to arrive at denial. Most of the white collar criminals Professor Soltes spoke to showed little remorse and many felt they had been unfairly penalised for behaviour ubiquitous in their industry.
Andrew Fastow, the former chief financial officer of Enron convicted for conspiring to mislead shareholders about the company’s financial position, said that he wouldn’t have gone to the trouble of devising innovative ways of presenting information if all he wanted to do was “just” cheat.
“We were finding ways to get around the rules but going through a complex process to find the loopholes to allow us to do it . . . I cheated fair and square . . . People thought this stuff was frickin’ brilliant.”
Allen Stanford, convicted in 2012 of running a $7 billion Ponzi scheme, feels no guilt for the losses incurred by the tens of thousands of investors at his bank because he sees its collapse as resting squarely with regulators. “There truly is no other conclusion,” he said.
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Bernie Madoff, imprisoned for 150 years in 2009 for operating the largest private Ponzi scheme in history, was singularly lacking in empathy. Unusually, he knew many of his victims personally but still had no qualms about duping them for years.
“Shortly after finding out his son had died, Madoff wanted to discuss interest rates,” Professor Soltes writes. “It almost seemed as though I was more personally moved by the death of Andrew in those moments than his father.”
So how might we prevent such behaviour in future? Independent directors could play a key role in making senior executives examine their behaviour, but only if they are drawn from outside the ranks of the C-suite cronies.
Professor Soltes also suggests that business schools promote the “spousal test”. If, once a year, you had to give your spouse, someone you presumably respect, a full account of your behaviour at work, how proud would you be? Maybe it’s something we can all try over the holidays.
Alexandra Frean is Business Columnist at The Times