Compliance Culture

Practical insights for compliance and ethics professionals and commentary on the intersection of compliance and culture.

Corporate takedowns: Theranos

This is the second post in a series of four posts about corporate takedowns.  Last week’s post was about American Apparel.  Today’s post is about Theranos.  The third post on April 17 is about Facebook, focused on the recent Cambridge Analytica data sharing revelations.  The fourth and final post, on April 24, will discuss Gawker.

For an in-depth discussion of the corporate history and culture of Theranos, check out this post.

A variety of business ethics and cultural practices contributed to the failures at Theranos both as an enterprise and in fraudulent representations made by its founder and CEO, Elizabeth Holmes, to investors and the public.

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Compliance in Arrested Development

Check out the below clips from the cult classic television show Arrested Development.  Given that much of the show is devoted to dealing with the fallout from the family’s business operating fraudulently for many years, it should be no real surprise that there are many themes of compliance and ethics that recur throughout the show.

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Imposters throughout history

Imposters are a fascinating sub-set of fraudsters. Throughout history, individuals who have committed fraud for a variety of reasons – financial gain, social mobility, and even political or corporate espionage – by pretending to be someone they are not. Some of these people are repeat fraudsters, spending much of their lives assuming other identities and committing great amounts of time to working on complex backstories for their false identities, including disguises, accents, and fake community or cultural ties. In order to commit these fraudulent acts, imposters often make deft use of social networks and engineering, by falsely representing themselves in personal or business relationships and then using one misrepresented connection in order to forge subsequent ones.

In this respect, imposter fraud is often the proximate cause of many other types of fraud, creating the trust and credibility that provides access for the faker to commit his or her offenses. Therefore from an ethical culture perspective imposters are quite interesting to study, in order to ponder their motivations or the heuristics and expectations for honesty and evidence that allow their fraudulent efforts to succeed.

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Regulatory and compliance omissions in the Volkswagen emissions scandal

The Volkswagen emissions scandal, also known as “Emissionsgate,” kicked off in 2015 when the US Environmental Protection Agency (EPA) notified the carmaker that it was in violation of the Clean Air Act.  With the altered engine emissions controls, the programming misrepresented nitrogen dioxide output so that it appeared to meet US market standards.  In reality, however, the real performance of the vehicles on the road without the altered programming for the testing environment resulted in output that exceeded the regulatory limit by up to 40 times.  For a basic overview of the Volkswagen emissions scandal as it unfolded since 2015, check out this primer from the BBC:  Volkswagen: The scandal explained.

The altered emissions results were ultimately exposed due to re-testing.  The International Council on Clean Transportation accumulated research from a variety of sources which upon study showed additional emissions in road tests from those recorded in the regulatory testing environment.  Once these non-conforming results were provided to the California Air Resources Board in 2014, they were ultimately escalated to the EPA, resulting in the investigation and enforcement action which led to the Clean Air Act notice of violation.  The investigation conducted by the EPA demonstrated that from 2008 to 2015, Volkswagen had intentionally modified many diesel engines in its vehicles to fraudulently “pass” regulatory testing.

In the aftermath of the EPA notice, Volkswagen was subjected to investigations in various countries.  The fix for the emissions issues to bring them into true compliance with the regulatory standard may cost the company as much as $15 billion or more, with fines so far in the US alone of almost $3 billion and several executives facing personal criminal charges for their role in the fraud.

One of the striking aspects of this particular corporate scandal is that as the corporate misconduct was exposed, it showed that Volkswagen took advantage of the regulatory testing by exploiting design and engineering knowledge in making engine construction choices expressly in order to deceive it.  In many cases of consumer safety or standard violation recalls, the manufacturer merely fails to make required changes or delays doing so, resulting in unsafe conditions or violation of regulatory and legal requirements.  Similarly, defeat devices which “trick” regulatory testing systems (actually codes programmed into the vehicles’ computerized control panels) are nothing new in the automotive industry, as explained in this Ars Technica piece.

In the Volkswagen’s case, however, as explained in this Investor’s Business Daily article, the carmaker made redesign choices to its emissions system that were not practical for business purposes but directly enabled the testing manipulation.  Then, when faced with a need to demonstrate compliance in order to access the market, instead of altering planned performance or gas economy standards, the company opted to game the system with installing defeat devices on the very system it installed knowing it would need to be defeated and would enable doing so.

So why would a company make all of these conscious choices to dupe the system and spend money on deceptive systems instead of making the same amount of effort to establish real compliance and avoid the dishonesty?  At its root is most commonly what was referred to in lawsuits against Volkswagen by several states as a business culture of “corporate arrogance.”  As this NPR article explains in a nutshell, Volskwagen thought it could get away with the fraud because others in the industry did it too and because it was Volkswagen.  The company rigged its vehicles after going to great lengths to determine that it was definitely illegal to do so, against clear legal advice and in light of full knowledge of the consequences, and in a culture of non-compliance which rewarded cheating and did not take responsibility or model appropriate conduct.

Nowhere is this values deficiency in the Volkswagen corporate culture more evident than in the reaction by the CEO, Matthias Mueller, to the public outcry in response to the fraud.  This interview with NPR shows how problematic the tone and conduct at the top was in the public handling of the scandal.  Rather than modelling accountability and transparency, Mueller instead insisted that there were no ethical issues at Volkswagen and that rather the emissions fraud was due to a technical problem in the company’s interpretation of US law.  Mueller repeatedly asserted that the company did not lie or deceive but instead misunderstood US legal requirements, a disingenuous and unconvincing defense for a major global corporation which must contend with a complicated fabric of regulatory and legal frameworks all over the world to meet its duties in doing business.

The gap created by this purported legal misinterpretation could and should have been filled by a values-based approach, where taking corporate social responsibility for environmental impact and making business decisions based upon best collective outcome rather than ease and expediency, with some enablement of future cheating as a side benefit.  Demonstrating integrity is not as simple as apologizing once you get caught, and portraying violations as mistakes is not an example of ethical leadership or sustainable business values.

For more on EPA compliance, check back on Thursday, January 25, for a round-up on current rule-making and enforcement trends at the agency.

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Fraud in sports: Game fixing

This is the fourth in a series of five posts on the topic of fraud in sports.  The first post, from December 5, was about marathon cheaters and how the frauds they perpetrate are discovered, investigated, and reported.  The second post, on December 12, was about fraud and falsification in the thru-hiking community.  December 19’s post was about fraud in sports gambling and betting. Today’s post will focus on fraud in sports both in history and current-day worldwide via game fixing. The fifth and final post in the series, on January 9, will be about major doping scandals in different sports and will focus on the ways athletes cheated by doping and how their use of performance enhancing drugs were supported or not identified by various institutions.

Game fixing is when a match is played to a final result which is partially or totally pre-determined.  Players, on their own or in conspiracy with others, may do this in an ongoing conspiracy in order to make money for and from gamblers.  Coaches and team administrations may also orchestrate losses for various reasons, including to impact their odds for the next season, including in draft position as well as for a friendlier schedule or playoff access.  For purposes of this post, game fixing also includes institutional operations to spy and cheat by teams personnel and coaches, with or without the cooperation of referees and/or players.

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Fraud in sports: Betting and gambling

This is the third in a series of five posts on the topic of fraud in sports. The first post, from December 5, discussed the motivations of marathon cheaters and the methods through which their frauds are discovered and publicized. Last week’s post, from December 12, was about thru-hiking fakers, discussing a collection of imposters and scammers in the long-distance hiking world. Today’s post will be about fraud in sports gambling and betting. The fourth post, on January 2, will focus on sports fraud via game fixing. The fifth and last post in the series, on January 9, will be about major doping scandals in different sports, including novel ways athletes cheated through the use of performance enhancing drugs and systematic efforts to either identify or support these fraudulent actions.

Sports gambling, both legal and illegal varieties, is a widespread social and cultural activity. Sports fandom goes to the core of many communities, in which cities and cohorts are bonded together by the activity of following and watching games or teams or entire leagues. For every spectator who attends or watches games, on a casual or a devoted basis, there are others who take their interest to a more commercial or financial level by engaging in various types of wagering, hoping to make money off predicting game or match developments and outcomes. Legal bets are placed through a bookmaker or sports book, which can be found online as well as in states or jurisdictions where sports gambling has been legalized and a marketplace with service providers within it has emerged. On the other hand, illegal bets are placed through individuals or privately run operations known colloquially as “bookies,” usually operating on a person-to-person, word of mouth basis.

Betting on sports results has led to a number of integrity-sensitive scandals and crises in the sports world. Apart from match fixing, which will be covered in next week’s post on its own, gambling fraud is facilitated through illegal betting and investment scams or other unregulated wagering activities. Fraud in this area can lead to other tangential illegal activity, such as money laundering that is facilitated by the fraudulent wagering transactions, and market abuse or violations of investor protections due to investment scams.

  • Advanced technology and the ever-increasing influence of the internet is impacting every area of human life more each day, and sports betting, as well as the fraud committed through it, is no exception. In this era of “fake news” and controversy about and confusion between fact and fiction on social media and in advertising, credibility of data comes into question. Activities that rely heavily on an empirical basis, such as predictive betting on outcomes of sporting events, are particularly vulnerable to the scourge of data manipulation and falsification. Fraudulent identities, records, and news about players and team developments can spread quickly and destructively with the aid of social media, putting the information bettors rely upon on shaky factual ground:  Fake news, manipulated data and the future of betting fraud
  • The state of New Jersey, bolstered by its desire to give a much-needed tourism and gaming business infusion to Atlantic City and its other gambling venues, is leading the charge to legally defeat the nationwide ban on commercial sports betting at the federal level.   The law being challenged is from 1992 and excludes states where sport betting or lotteries were already legal at that time, such as Nevada and Delaware. One of the principal arguments of proponents of rolling back the ban is that illegal sports betting is facilitated in huge volumes all over the country, and legalizing it would serve to bring that activity under regulatory and supervisory authority, and therefore strengthen risk controls and protections for market participants. In the current regime, the vast majority of sports gambling happens in illicit markets which are vulnerable to fraud and scams and devoid of investor protections that a regulated market could ensure and enforce:  Justices Skeptical of Sports Gambling Ban
  • Another motivation to further regulate and supervise sports gambling comes from the potential that criminals could use betting transactions and proceeds, whether legal or illegal, to conceal and process funds from illicit activities. Sports wagering is a cash activity with high volumes and therefore an attractive fit for criminal operations. Money laundering by organized crime enterprises, for example, is often thought of as taking place through match fixing but in reality happens much more frequently through sports betting. Markets and exchanges in which this betting takes place are often not transparent and therefore are susceptible to and useful in manipulation by criminals. In on-going efforts to ensure that the world of sport is cleaner and transparency wins out over anti-corruption forces, focusing on regulating and improving the efficacy of honest sports gambling markets is a key focus of organizations such as the International Centre for Sports Security:  Betting fraud, not match fixing, is main enemy: expert
  • Conmen and scammers also find their marks under the guise of sports betting operations. In the case of Peter Foster, his fraud involved a betting club that he held out to funders as an investment opportunity. This was an international scheme which purported to be an online gambling service but rather functioned as an offshore syndicate operation where investors’ money was moved out of the country and gambling returns and activities were falsified along with the identities and records of the principals allegedly involved in the operation. Claiming hugely successful investments in different major bets and alleging impressive records, all that definitively happened through the Sports Trading Club was that a lot of investors lost their money in a fraud of the type that is repeated over and over again in any business in which trusting individuals can be attracted to give up some of their funds in hopes of winning big through someone else’s management efforts:  Peter Foster implicated in international betting scam
  • Finally, the world of fantasy sports presents a daunting challenge on all of the above themes – unregulated markets, varying user expectations, and diminished participant protections. Fantasy sports, where users assemble hypothetical teams and play against each other in simulated games and seasons, began years ago in grassroots origins, where participants mostly self-assembled into leagues that they administrated themselves. This system pre-dates the internet and was revolutionized by the advent of online, forum-based league play. In the ensuing years corporate interests came into the community and set up corporations that offered daily or weekly play and uncannily resembled gambling platforms, yet were purportedly for entertainment purposes only and therefore escaped the regulatory scrutiny to which gaming or sports book companies would be subjected:  Scandal Erupts in Unregulated World of Fantasy Sports

Check back in two weeks, Tuesday January 2, for the next to last post in this series of five, which will be about game fixing, describing game-throwing conspiracies by players or institutional operations to spy and cheat by teams and coaches.

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Fraud in sports: Thru-hiking fakers

This is the second in a series of five posts on the topic of fraud in sports. The first post, from December 5, was about marathon cheaters and how they are publicly investigated and exposed. Today’s post will be about imposters and scammers in the world of thru-hiking, a hard-core and tight-knit community of athletes who long-distance hike with the objective of completing a major trail end-to-end at once. Next Tuesday’s post, on December 19, will discuss fraud in sports gambling schemes, including those committed by players and to induce people into fraudulent investment vehicles. On January 2, the next to last post will be about game fixing, describing conspiracies by players to throw games or systemic spying and cheating operations by teams and coaches. The final post in the series, on January 9, will discuss fraud in sports via doping scandals, such as in the Olympics and the Tour de France.

Thru-hiking is the endeavor of hiking a long-distance trail in full within one hiking season. In the United States, there are three main trails where these attempts are made: the Appalachian Trail, the Pacific Crest Trail, and the Continental Divide Trail. Thru-hiking these trails can take months, passing through all kinds of remote trail and difficult weather conditions, and requiring immense planning and preparation to do so safely and with proper equipment, provisions, and support. Adjacent to thru-hiking is section-hiking, in which hikers complete parts of the same trails methodically over a longer period of time. Because of the intense nature of this activity, and the survivalist needs of the participants who camp rough along the trail and crowd-source information about conditions and news from both the outside world and further down the trail, tightly bonded communities of hikers form.

In this insular community comes a lot of trust and reliance on people’s credibility and honesty. People share materials, hike sections relying on each other’s planning and information about conditions, help each other when they are out of money or food, and generally work together to stay safe and make progress in their individual and collective efforts in the thru-hiking process. In such an intimate social group, reliance on honesty creates unfortunate opportunities for people to commit fraud and carry out scams. Sometimes these acts of dishonesty take advantage of other hikers, whereas others falsify accomplishments or misrepresent setting records.

  • In summer 2017, the story of an inspiring thru-hiker began making the rounds on social media, even receiving publicity in the press and coverage on television news. Stacey Kozel was portrayed as a hero for completing both the Appalachian Trail and the Pacific Crest Trail as a paraplegic with lupus. Unable to use her legs unassisted, Kozel relied on specially-designed braces that allowed her to not only walk, but miraculously walk long distances. However, much like the case of marathon cheaters, the online community of thru-hikers and those who support and follow them soon became skeptical to her claims about her achievements. Thru-hikers operate on a quasi-honor system, without a self-regulatory organization to administer verification and investigation efforts when individuals proclaim that they have completed hikes or set records. However, a robust independent community exists on forums online and that community relies upon much of the same data used by marathon runner authenticators – GPS data, photographs, witnesses, and other real-time physical evidence. No one could remember seeing Kozel on most of the trail, and encounters she should have had with other hikers in rest and communal areas were totally lacking. The photographs of Kozel were mostly only taken at trailheads or other area relatlvely easy to access by driving and then walking a short distance. Kozel reiterated her claims that she did the thru-hikes, but did not stand up to continued scrutiny, and she subsequently removed most of the coverage of her purported hike from the internet. One of Kozel’s possible motivations for pretending to do the hike could have been to get publicity for her leg braces, as she stated that she wanted to be an inspirational user of them and to encourage insurance companies to cover them: How Did No One Notice This Inspirational Hiker On The Pacific Crest Trail?
  • Taking the endurance sport of thru-hiking to an all-new level, there are some individuals who take an ultra-marathon approach to completing the trial. These people aim not only to complete the trial in one go, already an audacious task, but to do so as quickly as possible, in pursuit of a record known as Fastest Known Time (FKT). In 2016, Kaiha Bertollini claimed to have set a huge FKT on the Appalachian Trail. Her announcement of her achievement was shortly followed by major doubts and dissension. Bertollini did not have a support crew, was seen drinking and smoking on the trail or even taking “zero days” where she did not hike at all despite her claim of a lightening-fast finish time, and did not produce the proof and documentation demanded by the community, claiming that her phone that held the evidence was broken. Claiming an achievement like a FKT without the requisite evidence in the 21st century, with the community’s obsessive demand for proof and data easily satisfied by all the recording capabilities technology affords, is sure to arouse criticism and mistrust: The Problem with Claiming a Fastest Known Time in the 21st Century
  • Further in the challenges of the concept of validating FKTs, the popular doubts about claims of setting records suggests that there may be some need for a more robust and reliable authentication system. As the sport grows in popularity and recognition, the unofficial arbiters of the records may need to become at least somewhat more official. In their early days, ultramarathons were plagued by the same questions about reliability of their results, as informality and athlete-driven timekeeping reigned. However, most ultramarathons now are governed by some administrative entity or a race organization, and they typically have reliable, consistent rules about the type of data that is accepted to substantiate accomplishments and prevent concerns about alteration or falsification. The time could be near for thru-hiking and FKT attempters to follow suit: We Need to Re-Evaluate the Fixation with Fastest Known Times
  • On a different note, one of the reasons why most people know anything all about thru-hiking or about the trails on which it happens is because there have been several very popular books and film adaptations about the attempts of amateurs to join the sport. Two of the most famous of these books (with movies based on both) are Bill Bryson’s “A Walk in the Woods” and Cheryl Strayed’s “Wild.” These books, depicting thru-hiking attempts on the Appalachian Trail and the Pacific Crest Trail respectively, are both bestsellers and have fascinated readers with their depictions of the authors’ amusing and emotional attempts to immerse into the lifestyle of the thru-hiker. However, a careful contemplation by a real thru-hiker would lead anyone to likely conclude that neither of these authors truly thru-hiked or accurately depicted the experience of having done so. In all cases, the authors wrote interesting, engaging books, mostly appealing emotionally to the readers by retelling the tales of their lack of preparation and overwhelmed reactions to the hike. In the end, they often had to reduce their efforts and could not meet their ambitions. Their books are more about this than they are about actually thru-hiking, and therefore they may reproduce conversations or thoughtful revelations truthfully, but the descriptions of the trails themselves, which induce many other amateur hikers to embark on journeys of their own, are perhaps not so faithful: Why the Most Popular Hiking Memoirs Don’t Go the Distance
  • Finally, a tale of an imposter scammer who chose the trusting and supportive community of thru-hiking to execute his cons: Jeff Caldwell is a serial scammer who operated for many years in the outdoor community, posing as a thru-hiker and taking advantage of fellow thru-hikers and people to whom he appealed because of this identification. He used his false accomplishments as a thru-hiker to pull off romance scams. He claimed he had completed what is known in the thru-hiking world as the Triple Crown – thru-hiking the Pacific Crest Trail, the Continental Divide Trail, and the Appalachian Trail. These assumed bona fides gave him credibility in the community and made his victims easier to befriend and defraud: Inside the Mind of Thru-Hiking’s Most Devious Con Man

Check back next week, Tuesday December 19, for the third post in this series of five, which will be about fraud in sports as illustrated in sports gambling.

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Compliance and MLMs

Although multi-level marketing companies (MLMs) have been selling products and services via “distributor” networks for years, they have shot to prominence in the aftermath of the 2008 global financial crisis. In reaction to long-term unemployment or under-employment and systemic, structural changes to the labor market in many communities, non-traditional workforces such as the non-employee, commission-only participants in MLMs have become more common than ever before in the United States.

MLMs all determine their own compensation scheme and marketing and recruitment strategies, but they do share some similarities with the way they brand themselves and communicate. They operate in diverse industries, from nutrition and fitness/wellness to fashion apparel to jewelry to housewares, but they all are organized around a pyramid-shape commission system, where participants at the top recruit and make residual income from the participants below them on a sliding scale. These business also all rely heavily on worth of mouth marketing, both to sell the products or services on offer as well as to recruit new participants to fill out the levels of the pyramid.

Because of this operation style, MLM participants are expected to promote the products and the company itself very eagerly, often expressing the financial freedom and flexibility that the non-traditional working arrangement has granted them in unstable times and portraying the MLM company as a self-employment or entrepreneurship opportunity. These portrayals are particularly effective with the aid of social media and are prevalent in communities where social connection and employment consistency may be hard to achieve and sustain, such as stay-at-home parents, military spouses, or people who need to work from home for medical or personal reasons.

While some MLMs certainly do offer popular products and present an opportunity for participants to earn at least some income, studies have shown that most participants make no money from their involvement or even lose money due to sunken costs of inventory and personal products they buy and do not or cannot sell. Questions are rampant as to whether many MLMs are pyramid schemes, scams that purport to sell products or services but really just recruit members in order for them to recruit other members.   These schemes are often illegal and seen by many as immoral due to the misleading or even fraudulent representations made to participants to get them to spend money, join, and continue making investments.

  • As noted above, one root cause of the popularity of MLMs in the current economy is the struggle of many communities for economic opportunity post-financial crisis. Rural communities, for example, were especially hard-hit by the crisis and have not experienced a fully-realized economic recovery in the following years. To these individuals, joining an MLM appeals because it promises freedom for family time, quick income, and an “American dream” lifestyle that is otherwise far out of reach. This version of the MLM business model is laser-targeted to women in these rural areas who did not work before the financial crisis or don’t work now and seek economic freedom and community, as well as the allure of fun products such as nail decals or whimsically patterned leggings. These companies hawk a message of women’s empowerment and female entrepreneurialism matched with a do-it-yourself dream of financial success. Unfortunately, many of these people enter into these businesses by getting into debt and are never able to recoup their initial investment let alone make money for it that could justify the effort and hours spent. Most disconcertingly, many of the participants enter without any risk disclosure from the MLM company:  Multilevel-marketing companies like LuLaRoe are forcing people into debt and psychological crisis
  • This New Yorker piece goes into greater detail about the ways that MLMs play up the aspirational nature of their branding to recruit participants who join unaware of the attendant possible risks. In this case, companies such as DoTerra market aromatic oils to which all kinds of medicinal properties are ascribed without any regulatory or legal legitimacy to reinforce this. Participants in these MLMs often claim that their suffering from psychology, physical, and other medical problems have been almost miraculously addressed by using the products they are selling. The companies operate in a gray area of not giving medical advice but nonetheless suggesting that the products can help with health or lifestyle problems, creating an echo chamber where customers and participants assure themselves that they are both sick and able to be cured by buying expensive essential oils and other homeopathic, non-regulated products: How Essential Oils Became the Cure for Our Age of Anxiety 
  • Here’s yet another perspective on how female participants have been manipulated through MLM company marketing and social media to stake their financial well-being on unattainable goals of personal enfranchisement and economic success. In their efforts to reach toward these goals, participants often find themselves instead in over their heads, without proper training or sufficient expertise selling products that are not regulated, effective, or sometimes even safe:  How Women Making Men Rich Has Been Misbranded As Feminism
  • MLM participants aren’t only at danger of fraud, misrepresentation, and other risks from the companies for which they are sellers. In a commercial market run by independent sellers and conducted via person to person sales, often online and even on social media, sellers are vulnerable to disputes with customers. Buyers can be fraudulent or even predatory and sellers often find themselves out on both the product and their money. MLMs such as LuLaRoe often do not step in to intervene on behalf of their representatives, who have a consultancy relationship with the company and therefore are not afforded the same protections as employees might be. The style of selling is overwhelmingly casual, social marketing conducted via comments on pictures on social media or at parties, making direct salespeople especially susceptible to scammers:  Do MLMs Protect Their Online Sellers From Fraud?
  • Since 2012, hedge fund manager Bill Ackman has been embroiled in an ongoing dispute with Herbalife. Ackman has spent years shorting Herbalife in hopes that its stock price will be driven to zero by public and regulatory identification of the company of a pyramid scheme. Due at least in part to the publicity generated by Ackman and likeminded individuals, in 2016 Herbalife settled with the Federal Trade Commission to resolve their charges that the company had made deceptive disclosures to distributors who lost money. As part of the FTC settlement, Herbalife agreed to provide evidence that its products are being sold to actual customers and not just participants within the pyramid who are funding their own involvement and keeping the façade going to recruit new people underneath them. The standard this settlement sets for the MLM industry, should the FTC keep pace with investigation and enforcement priorities in this, could greatly complicate the way these companies operate: Herbalife Deal Poses Challenges For The Industry

To find out more about MLMs, how they have become so ubiquitous in today’s employment market, and the risks they pose to participants and the economy in general, check out the great piece from a 2016 episode of Last Week Tonight with John Oliver.

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Fraud in sports: Marathon cheaters

This is the first of a five-part series discussing fraud in sports. This starts with today’s post which will discuss runners who have been publicly exposed as cheaters in marathons. Next Tuesday’s post will be about imposters and scammers in the world of thru-hiking, a popular endurance sport where people long-distance trail hike in areas like the Appalachian Trail in the Eastern United States or the Pacific Crest Trail which stretches from California to Washington. On Tuesday December 19, the third post will be about sports fraud via gambling, including betting by players and illicit investment schemes. The fourth post on January 2 will be about game fixing, such as the Black Sox Scandal in which several players on the Chicago White Sox conspired to throw the World Series. The fifth and final post, on January 9, will be about major doping scandals, including Lance Armstrong and allegations of systematic doping by the Russian Olympics delegation.

Marathon cheating is a phenomenon that has both fascinated and infuriated running commentators. In a community which is fixated on qualifying times, personal bests, and self-identifications as hobbyist or elite runners which can be separated by mere seconds of pace time, honesty about runner times and speeds is sacred.   In this context, runners who cut courses short, falsify results, or claim publicity for false achievements, undermine the most fundamental measures of success in the marathon running world.

  • In the 1980 Boston Marathon, Rosie Ruiz, a 26-year old New Yorker, finished first among the female runners with an impressive time of just over two hours and thirty minutes. In the face of her amazing accomplishment, Rosie was nonplussed and composed – probably because she cut the course and did not run the 26.2 miles. Ruiz had her medal revoked when other runners stated that they witnessed her running onto the course at mile 25. It turned out that she exited the marathon course near the beginning and took the subway there, where she re-entered and claimed a false victory. Upon investigation, it was discovered that Ruiz’s Boston qualification time, run in the 1979 New York Marathon (her only other marathon before), was fake also, achieved because Ruiz again cut most of the course by riding the subway to re-enter near the end. Ruiz’s fraud rocked the marathon running community, in which road racers had a strong honor code that they felt was pure and safe from cheating that had afflicted sports with equipment or environments that could be altered or adjusted for cheating: Backtalk; 20 Years Later, the Legend of Rosie Ruiz Endures
  • Kip Litton intended to be well-known far outside of his social circles in Clarkston, Michigan as a champion marathoner. However, he has gained notoriety for a different accomplishment in marathon running entirely: prolific misrepresentation of his results and of races run. As Litton shot to the head of the pack in a number of small marathons, his fellow runners became confused by and curious about his quick rise to the top. By investigating race photographs and triangulating his likely performance based upon verifiable race times and per mile paces from previous chip-timed runs, other runners discovered that Litton was falsifying his performance. He was able to pull off this fraud by strategically picking races where he could cut courses or claim to have run qualifying times without even participating at all. The evidence of Litton’s misconduct assembled by the amateur investigators is fascinating and pathological in its devotion to his fraud, even amid Litton’s disqualifications from various races after inconsistencies were pointed out to directors: Marathon Man 
  • Social media has provided a fertile environment for inventive marathon cheating. Legitimate runners who share photos showing their bibs, the identifying numbers that runners wear pinned to their chests or backs during the race, have had those photos stolen and used for bib replication. Runners then use the fake bibs to “bandit,” or run incognito and illicitly, at races. This could be to avoid paying registration fees, to falsify qualifying records, for a prank, or for a creative type of identity theft. As discussed above, the runner community is vigilantly self-policing, and the fascination with these bandits leads to far-reaching vigilante investigations and reporting to race administrators to “out” cheaters:  Inside the Weird World of Social Media Marathon Cheating 
  • The 2017 Mexico City Marathon was mired in scandal when almost 6,000 runners, nearly 20% of the field of 29,000 runner, were disqualified for cheating. Investigation showed that many runners missed timing mats. Others, however, blatantly cut the course, either by riding the subway (harkening back to Rosie Ruiz in New York in 1979 and Boston in 1980) or “bib mules,” runners who wear bibs intended for other runners who do not compete at all, in order to falsify their results (typically to post a qualifying time for Boston or another exclusive race). What exactly happened in Mexico City remains unclear, but it seems to have been a combination of opportunistic runners who took advantage of technological difficulties or shortcomings at the race, and runners cutting the course short by missing timing mats. Such a dramatic disqualification rate should lead the Mexico City organizers and indeed anyone who is behind setting up and administrating a major race event to take a deep look at their internal controls and ensure that future races are set up to diminish the possibilities for going off-course or bandit running:  What the Hell Happened at the Mexico City Marathon?
  • For runners who achieve their results legitimately, race day represents many months or even years of hard efforts brought to fruition. Therefore, for serious runners, cheating and falsifying results is a real insult to all of their work and cheapens the prestige they seek of a credible accomplishment. Therefore many marathon runners who are active in the online communities such as the LetsRun forums take their annoyance or offense at this perceived dishonesty to the next level, launching widespread investigations into uncovering and calling out impropriety. Many runners who do not cheat see those who have cut courses or faked times bragging online, promoting themselves via social media, and their outrage at these actions speaks to the philosophical morality of running. At its most elemental level, and despite the many data-driven external successes one can achieve in the sport, running is a pursuit of internal success, a battle within the self for endurance and accomplishment. Cheating hinders and harms this. People who investigate and call out cheaters hope that they are working as deterrents to runner dishonesty as well as acting as a sort of informal self-regulatory organization for the running community: How to Catch a Marathon Cheat  

For a lot more fascinating examples of and insight into marathon cheating, check out the site Marathon Investigation. Run by Derek Murphy, a business analyst, marathoner, and running fan, the site is a comprehensive survey of impropriety and cheating at marathons all over the world. It offers a really compelling look into the analytical and research aspects of investigating and tracking potential cheaters by using historical data, GPS records, published running times, maps, race photos, and much more publicly available data. For more about Murphy and his motivations and methods, read this profile.

Check back next week, Tuesday December 12, for the second post in this series of five, which will be about fraud in sports as illustrated by thru-hiking fakers and scammers.

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Tips for conducting compliance investigations

The task of a compliance officer is not to “set it and forget it.” Apart from planning and advising on risk management strategies, and monitoring business implementation of the attendant policies and procedures, compliance professionals must remain vigilant about the potential for violations. Internal compliance violations can run the causal gamut – they could be because of internal controls failures, unwitting omissions due to lack of awareness, or outright misconduct and malfeasance.

Compliance officers should approach an investigation into a compliance exception thoughtfully and with careful preparation. If the planning for or administration of the investigation is flawed from the beginning then the investigation results will not be reliable. In many fields, such as scientific research, planning investigation tactics and strategy is a discipline all of its own, demanding special expertise in statistical methodology standards.

For purposes of the internal investigations of compliance officers, a common-sense approach, focused on fairness and transparency, can take the place of technical expertise in conducting informal internal investigations that will still generate reliable and meaningful results. Compliance professionals should keep the following fundamental themes in mind when designing an investigation effort:

  • Reject foregone conclusions: Compliance investigation inquiries can be sensitive and intimidating. Most people do not want to do the wrong thing and will be worried or even frightened by the possibility that they have broken rules or regulations. They will fear that their jobs are at risk or worry about the reputation of the company due to the misconduct. Therefore, take the investigation seriously, even if its scope is limited or it’s routine. Don’t decide the outcome before the information is gathered. Investigations should be motivated by intellectual curiosity, in the case of annual or planned investigations, or, in the case of ad-hoc or event-driven investigations, an objective desire to protect and promote integrity, which knows no master.
  • Work carefully: Sloppiness and poor preparation will doom an investigation from the beginning. Compliance professionals should work carefully and check their work as they go along. Simple errors such as directing queries to the wrong recipients or asking for information that is out of scope of the investigation can cause a terrible impression with stakeholders and disrupt the efforts of the investigation.   Communication is key, and information communicated to all parties throughout the investigation should be accurate, clear, and appropriate at all times.
  • Give support, not interference: Compliance often collaborates with other functions such as HR, Legal, and Risk; this collaboration should be encouraged, not complicated or avoided. In planning investigation strategy, work together with partners and stakeholders whenever possible (legal privilege and confidentiality, where it applies, must of course always be respected). Sharing information helps to make conclusions stronger and to avoid inefficient duplication of efforts.
  • Follow through with enforcement when misconduct is evidenced: Investigations are toothless when the results are just put on a shelf and forgotten. Enforcement action must come next, and in every outcome, there is appropriate follow-up. In instances where misconduct is discovered, whether it is from negligence or intentional wrongdoing, disciplinary action should be taken with concrete consequences. Substantive structural changes should be made also the risk control framework to seek to prevent or identify earlier the non-compliant behaviour whenever possible. Punishing the wrongdoer is not enough; addressing the root causes of the wrong-doing has to happen too.
  • Feed-forward when no malpractice is discovered: Not every investigation will be an open and shut case where there are good people and bad people and everything wraps up neatly. It may be that the investigation yields no evidence that anything material happened. It’s also possible that the investigation would show some unrelated deficiencies, such as in communication strategies or employee awareness. Finally, the investigation could produce inadvertent lessons for the compliance officer him or herself to take back to a future risk assessment and planning session. Whatever these conclusions are, don’t discard them just because they don’t lead to a punitive action. Feed them forward into risk controls improvements and future compliance program efforts.

Compliance officers who consider the above suggestions in planning their own investigation strategy will be focused on obtaining neutral, credible information. They will communicate clearly and engage stakeholders supportively. Enforcement actions stemming from the investigation efforts will be pro-active and productive. With these approaches, compliance officers can establish credibility and effectiveness in conducting internal investigations.

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