Stupid Emails
 
Habitat for Humanity received a federal grant in 2010 (to the tune of $21 million) to help stabilize a neighborhood in New York’s central Brooklyn that was hit “particularly hard” by foreclosures during the financial crisis. The idea being that Habitat would buy abandoned apartment buildings and renovate them. Unfortunately, there weren’t any vacant buildings available to buy. This caused longtime tenants to be evicted from their homes so developers could sell (for a small profit) to Habitat. Sure, many needy families gained homes but many needy families became needier, by becoming homeless. According to an investigation lead by ProPublica, despite being advertised as “long vacant” four out of five were still occupied before Habitat entered into purchasing negotiations. Habitat effectively spent millions in federal dollars to throw low income families out on the street. Oops. Investigations like these ultimately unveil incriminating emails, which for me, is the silver lining.  Bill Bogdon, the director real estate for Habitat shared internally, “The Jefferson building I researched is now vacant, and I am speaking with the owner. The challenge with this one is the recent occupancy.” Clearly Habitat knew what it was doing and senior members had no problem with it. Doing something unethical is well, unethical. Writing about doing something unethical is just dumb. Here is another one from the desk of the Director of Habitat-NYC (at the time) Josh Lockwood, “There’s zero doubt in my mind that [Katz is] (the developer tied to the deal) a bad guy and did bad things…Agreed its unlikely that an investigative reporter would target us specifically, but obviously we’d need to be prepared in the even that s/he does.”  Ideally, if you’re doing something that you don’t want to be investigated, that might be the first sign you’re doing something that you shouldn’t be doing. Additionally, I can’t prove this theory but I believe the mere act of admitting wrong doing and the low probability of being caught elevates the probability that you will get caught.
 
JP Morgan Debt Traders
 
The SEC has launched a formal investigation into government debt trades made by JP Morgan traders. The two traders left the firm earlier this year over “compliance procedure” disagreements. That’s not really a great sign. JP Morgan is already under tremendous scrutiny and FINRA has stated they are also researching the termination of the traders as well as statements made by the firm surrounding the departure. In order to understand what happened, a little background information is needed. Traders at JP Morgan wanted to increase the size of reserves (I’m still not really sure why) so they went outside the valuation committee with an unorthodox procedure. Banks will keep excess reserves on hand in the event that less liquid investments (like strips) experience volatility because strips can be hard to sell. For the uninitiated, strips are basically bundled Treasuries that are less liquid. Having Treasuries will not cause reserves to go up so the traders bundled some treasuries and made strips, turning liquid investments into illiquid ones and thereby increasing the bank’s reserves. You have to hand it to the traders, that is clever. Too clever though, for JP Morgan. Both regulators, the SEC and FINRA are investigating the trades as well as the trader’s departure.  Specifically, in their disclosure, JP Morgan stated that the traders were “permitted to resign” choosing to forgo any further explanation. If you are a large bank under tremendous scrutiny, maybe make sure you over-explain everything.
 
Sports Betting
 
Elsewhere at JP Morgan, five employees were terminated for sports betting at work. This error is compounded because I worked at a bank and can tell you that the firm’s stance on illegal sports betting is crystal clear. Don’t do it. Seriously. Because it’s illegal. And if you’re going to do something illegal, really, don’t do it here, at your place of work. Especially because you work at a bank. And we’re highly regulated. These guys worked in operations so you would expect them to really understand this sort of thing. Additionally, we’re not talking about an errant bet here and there but a highly organized system that was large in scope. According to the Financial Times, employees were winning and losing upwards of $10,000 a week. The bank initially caught on because employees were moving money back and forth in their chase bank accounts. The bank then did a more thorough investigation and found the betting system ledgers saved on company computers. One employee stated the bank investigation was “like CSI.” However, it was very un-CSI-like of the bank to take 6-12 months to discover the betting.

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