Blagojevich Investigation Started With Real Estate Corruption

According to a story in The New Yorker, an investigation into real estate corruption ultimately caught the governor of Illinois trying to sell Barack Obama’s Senate seat: Whistle-blower by Nina Burleigh.

According to the story, an Illinois hospital was having trouble getting permits from the planning board. That is until they agreed to hire a certain contractor. That incident started U.S. Attorney Patrick Fitzgerald’s Operation Board Games.  As the probe widened, more wiretaps were put in place, and more corruption was exposed. Eventually, recording Blagojevich discussing the sale of Obama’s Senate seat.

Strategies for Responding to Liquidity Needs of Investors in Real Estate Funds

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Goodwin Procter put together a great piece on Strategies for Responding to Liquidity Needs of Investors in Real Estate Funds.

As a result of the current economic downturn and global economic credit crisis, some investors find themselves over-allocated to investments in private real estate funds because their private real estate investments have not been written down in value to the same degree as their public investments (the so-called “denominator effect”). In addition, many large pension plans, foundations and endowments have suffered well-publicized losses in the public equity markets.

These pressures facing such investors are compounded by the fact that the virtual shutdown of the credit markets has dramatically reduced the volume of real estate transactions in the marketplace, which in turn has reduced the amount of distributions that real estate funds are able to make to their investors. Despite these liquidity constraints on investors, the current reduction in cash flows and sale proceeds means that many real estate funds may encounter an even greater than expected need to call capital from investors in the near term in order to fund operating costs and debt service, and to complete development or capital improvement projects.

Best Practice Advice for Improving Employee Awareness of Your GRC Program

This post gathers my notes from a webinar entitled Best Practice Advice for Improving Employee Awareness of Your GRC Program which was presented by EthicsPoint.

Barbara Upton-Garvin from the Boys & Girls Club of Greater Kansas City started off with a discussion of their awareness programs. They highlighted their ethics policies and their whistleblower’s policy.

Francine Obregon of Eisai handed out schwag with the whistleblower hotline information. The awareness program was in part designed to advise the employees know that the hotline is part of a larger compliance program. They had recently changed the principles of corporate conduct. She thought it was important to let peopel know that the person answering the hotline would not be answering the questions. The hotline was merely an anonymous conduit.

Barry Elmore from the Majestic Star Casino wanted a program to educate their employees and marketing of the reporting process. They have a broad range of education and knowledge for their employees. They found that the education process was over the heads of many front line employees so they stuck to the basics. They also educated their vendors as part of the program. They conduct new hire training and annual training. They also advertise the hotline in employee break areas and employee newsletters. They sent a copy of the code of conduct to each vendor. Some of his challenges include the 24 hour operations of the business, lots of turnover and confusion between HR issues and code of conduct violations.

Francine pointed out that Eisai focused on branding issues so that all of the compliance materials and schwag all had a similar look and feel.

Barry emphasized that you cannot be boring in delivering the message and training. The examples need to be on the “lighter side.”

Julie Rivera of Red Robin put up posters and handed out wallet cards. “Honest ro Goodness. It’s not just about gourmet burgers. It’s about treating people respectfully.” Red Robin started out with a top-down approach of getting buy-in from corporate in its push out to the individual restaurants. There was some confusion between the open-door policy and hotline. They do get a fair number of low level HR issues on the hotline.

The panel had some trouble answering a question about the effectiveness of the awareness program. Barry and Barbara both see an increase in the number of reports shortly after a training session.

Whistleblower Hotlines for Home Builders

In running through the Compliance Week database, I ran across a few Whistleblower sites and related information for construction companies.

Beazor Homes Confidential Ethics Hotline

Through the Ethics Hotline, you can report evidence of known or suspected fraud, theft, accounting or auditing improprieties, other financial misconduct, or any other type of misconduct involving the assets, operations or employees of Beazer Homes.

Toll Brothers Ethics Reporting

Toll Brothers, Inc. has a simple way for anyone to confidentially report activities that may involve unethical or otherwise inappropriate behavior relating to conflicts of interest, financial reporting, employee misconduct, safety, or other potential violations of the Toll Brothers, Inc. Code of Ethics and Business Conduct.

Pulte Homes Speak Up (.pdf)

HOW WE DO BUSINESS IS AS IMPORTANT AS THE BUSINESS WE DO.
If you have a concern regarding unethical activity, don’t keep it to yourself. Discuss it with your manager.
Or, if you prefer to remain anonymous, call: The Network.

D.R. Horton Complaint Procedures for Accounting, Internal Control, Auditing and Financial Matters. (.pdf)

Any person may submit a good faith complaint regarding accounting, internal accounting control, auditing or financial matters (collectively, “Accounting Matters”) to the management of D.R. Horton. D.R. Horton is committed to achieving compliance with all applicable securities laws and regulations, accounting and financial standards, accounting controls and audit practices. D.R. Horton’s Audit Committee will oversee treatment of concerns in this area.

KB Home Ethics Policy (.pdf)

DOING THE RIGHT THING FOR THE RIGHT REASON
At KB Home, our commitment to doing the right thing for the right reason is the foundation of our homebuilding success and 100% Complete/100% Satisfied culture. Legal obligations and public expectations regarding appropriate business conduct make it more important than ever that we continue to follow the highest ethical standards in everything that we do. Our failure to do so can have serious consequences, including civil and criminal penalties and significant damage to our reputation in the eyes of our customers, business partners and investors. The KB Home Ethics Policy reflects our commitment to operate in an ethical manner, with integrity and in compliance with applicable laws and regulations, and it establishes principles to guide actions and decisions that can be applied in everyday situations.

If you have any questions or concerns, please report them to an immediate supervisor, to one of the designated Ethics Officers, to the Ethics Policy Hotline or to the Ethics Policy Reporting Website.

CBRE’s Values and Standards of Business Conduct

CB Richard Ellis distills its corporate values to RISE.

Our corporate values are the foundation upon which our company is built. These values are timeless and transcend all markets, service lines, languages and business cultures.

RESPECT

  • Treat everyone with dignity, value their contributions, and help one another succeed.

INTEGRITY

  • Uphold the highest ethical standards in our business practices.

SERVICE

  • Dedicate ourselves to making a meaningful impact with our clients and in our communities.

EXCELLENCE

  • Aspire to be the best in everything we do and drive for continuous improvement.

CBRE has published their Standards of Business Conduct (2004). They also published their 2007 Corporate Responsibility Report which includes several pages on their ethics and compliance program.

SEC Internet Enforcement

In the December Issue of Compliance Week, Bruce Carton tells some of the history of the SEC’s enforcement history.  One of the first internet efforts was an email address for the public to send tips. Back in 1996 there were about 20 complaints a day. Now there as many as 10,000 a day.

With all the complaining about the SEC, it is important to note that the SEC cannot uncover every violation or financial scam out there. How do you deal with 10,000 emails a day? Clearly the SEC missed some things in its Madoff investigations.  Maybe they were a little soft on him given his reputation. Given that he convinced so many smart, rich people money, I assume he his very persuasive.

You have an under-manned agency looking at a charming man with a great reputation. There are lots of other bad guys out there. You move on and look for more problems.

Lessons from Rome

Mary Bennett of the Ethical Leadership Group wrote three lessons we can learn from the ancient Roman army:

First, there is the timeless importance of culture. People in a society or organization will behave according to the most widely accepted common denominator, modeled by those at the top. We must train and communicate with our leaders so they get this.  So that they can communicate and stress the importance of this culture on the organization

Second, we must realize that human behavior is motivated by both the carrot and stick. Roman soldiers got paid if they followed the rules; they got executed if they did not. A simple and effective approach. We may not be able to adopt this exact approach in our ethics and compliance efforts.  But must be sure to reward good behavior as well as discipline bad behavior. Do both consistently.

Third, good controls are a must. The Roman army minimized its risks through clear rules, repeated training, and swift reinforcement with the carrot and stick. What worked in Rome can work in your organization through your ethics and compliance efforts.

Secured Creditor Filings

It recently popped into the news that the lender for the bankrupt law firm Heller Ehrman terminated its UCC filing: Banks May Lose $51 million in Heller Dispute.

On August 3, 2007, a UCC Financing Amendment was filed with the termination box checked. (See a copy of the UCC Amendment.) The lender filed a correction statement in an attempt to fix this problem. Given that the correction was filed in the 90 days prior to the bankruptcy filing, it would be treated as a “preference” under the bankruptcy code. That means instead of being a secured creditor, first in line for its share of the assets, the lender is unsecured and in with a large group seeking a proportionate share of what is left.

If you are a secured creditor (or at least you think you are) you need a program in place to periodically check the status of your filings. You also need an internal process to double-check filings before they are delivered.

Professor Frankel Testifies In Congress

Boston University School of Law professor Tamar Frankel testified before the Committee on Financial Services of the U.S. House of Representatives discussing Ponzi schemes, the importance of trust in the securities markets and the need for regulatory reform in light of the Madoff scandal.

See also:

The 2008 Year in Review from Securities Docket

This panel joined Securities Docket’s Bruce Carton to look back at the most important and interesting developments in 2008, and offer their predictions for 2009.

Kevin started off noting that the number of securities class action lawsuits in 2008 is a 33% increase over last year and the highest since 2004. He sees the increase as a result of the credit crisis, starting with the sub-prime loan programs and them spreading.

Kevin predicted that 2009 will see even more securities class action lawsuits.

Tom focused on SEC enforcement actions. He started with the Siemens FCPA case. He then mentioned the Faro Technologies case involving payments in China (Admin File No. 3-13059, June 5, 2008). Last he mentioned the UnitedHealth Group option back-dating case. Of course the big case is the Madoff scandal.

Tom expects to see a big re-shaping of the SEC and its enforcement division.

Francine looked at auditor litigation. Either the public accountants fell down while acting as the watchdogs against fraud on the public or that it is that they were also duped by management. The Big 4 has escaped sub-prime exposure so far but will likely get hit in Madoff. She sees BDO Seidman as having significant exposure from the Banco Espiritu Santo judgment. All of the Big 4 are subject to wage/overtime suits. Deloitte has sued their former vice chairman for insider trading.

Francine predicts that a Big 4 firm will take a significant hit for failing to make a “going concern” opinion prior to a big failure.

Walter sees the federal government’s bailout amplifying the effect of the financial markets meltdown. This was not just a Wall Street problem; it is now a taxpayer problem. Walter also expects to see more criminal prosecutions against individuals. He points out that the cutting edge risk methods blew up. CDSs and CDOs caused explosive damage. Also low-tech methods failed. The personal relationships of Madoff still failed investors. peopel are looking for lessons as to whether more regulations would have prevented the financial meltdown.

Walter predicts another AAA rated firm will have its executives indicted or be revealed as insolvent.

Bruce sees the Madoff case as the biggest development in 2008. He also sees the SEC getting worked over by Congress. The SEC admitted that they ignored credible evidence about Madoff.

Bruce predicts 90% of big law firms will begin to use Twitter for public relations.

A public vote found that Tom’s prediction was most likely to happen (41%) with Kevin following close behind (40%).