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WORKSHOP 7 – ETHICS

CAN WE LEARN FROM INFAMOUS

SPORTS SCANDALS

Lynn M. Young, MSPA

Pinnacle Plan Design, LLC

DeflateGate

• 11 of 12 footballs were deflated.

• Did he know? Should he have known?

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DeflateGate• If our staff is “deflating balls” do we

have adequate processes and procedures

to know?

– Overriding required steps

– Personalities that are too accommodating to

clients

– Not enough training

DeflateGate• What if our business model is to do back

office work for other Third Party

Administrators.

– What procedures do you put in place, when

the staff is not your staff?

DeflateGate• Are we willfully or negligently failing to

see problems?

– Turnover high

– Not paying attention at all/no review or

audit of work

– Have we created the right culture so our

staff is forthcoming?

– Client complaints

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DeflateGate• If accused of wrong doing, in determining

our guilt will our reputation matter?

– Patriots are a very successful team – sour

grapes?

– The Patriots would have won without the

deflated balls – does it matter?

– If we have a reputation for being aggressive

will that impact how accusations are

arbitrated?

THE WHACK HEARD AROUND THE WORLD

Nancy Kerrigan/Tonya Harding Scandal

• Harding – accused of co-conspiracy.

• Nancy’s Kerrigan’s fall from grace

• Missed Olympic Medal ceremony

• Told Mickey Mouse “This is dumb. I hate it.”

• Lost endorsements and television deals

THE WHACK HEARD AROUND THE WORLD

Nancy Kerrigan/Tonya Harding Scandal

• Win at all costs

– Do you get caught up in the competition for

the win of a client?

• Take on work that is beyond the scope of your

area of expertise or that you meet the

qualification standards to perform?

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THE WHACK HEARD AROUND THE WORLD

Nancy Kerrigan/Tonya Harding Scandal

• Falling from Grace

– Reputation – how quickly can one’s

reputation be damaged?

• Communication

• ASOP 41

Maria Sharapova• Failed Drug Test

• Suspended for 2

years

Maria Sharapova• Keep up to date

– Review the codes etc. for changes

– Review the Qualification Standards

– Disqualification

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Chicago Black Sox

• 1919 World Series• Chicago White Sox lost to

Cincinnati Reds• 8 White Sox players

accused of losing games in exchange for money from gamblers

• Players banned for life from baseball

Chicago Black SoxSnitching

• Do we have an obligation to report other

professionals when we “know” they have

done something wrong?

– Illegal

– Against Code of Conduct/ASOPs

– Different by profession

Chicago Black SoxLeft on the copier• You accidently see a co-worker’s expense report on the

copier. In a quick glance you can see that your co-

worker is inflating their expenses and falsifying receipts.

• What do you do?

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FIFA Scandal

• 14 indicted, 7 arrested in May 2015

• Wire fraud, racketeering and money laundering

• Bribery used in selection process for 2010 FIFA World Cup host

• FIFA decided on Russia for 2018 and Qatar for 2022 before the bid process

FIFA ScandalHow do we make the right decisions when

there is a lot of money on the line?

FIFA ScandalCan you make it happen?• An advisor, who refers you a significant amount of

work, has the opportunity to land a prospect that has a solo defined benefit plan with another actuary that has a large required contribution.

• The prospect is looking to make the smallest contribution possible and he is looking for you to make it happen.

• You review the valuation and see if you change the retirement age assumption to age 72, you can achieve their desired result.

• What would you do?

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FIFA ScandalJust go through me• An advisor comes to you and asks you to bid on a large

profitable case. If you bid, you are very likely to win the case.

• His only requirement is that he be listed as the primary contact and that no one from your firm ever contact the client directly.

• This is not your usual business model and you are concerned about receiving filtered information as well as things getting lost in the translation.

• Do you bid?

FIFA ScandalPricing• You are asked to bid on two plans. One is very large

and one is very small. The advisor asks you to price

them the same, which is not your usual model.

• Issues?

Doping - BaseballAlex Rodriguez• Claimed his innocence,

he was the victim of a “witch hunt”

• Eventually came clean on the use of steroids to DEA and prosecutors in exchange for immunity from prosecution.

• Suspended 162 games

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Doping - Cycling• History of doping in cycling since

1886• Many cyclists have died from drug

use• 1966 testing began at Tour de

France• Floyd Landis – first cycling star

publicly outed for doping• Lance Armstrong – stripped of all

titles, and banned for life from competitive cycling

Doping - Cycling• How do we do the right thing

on issues where we feel large parts of the industry do not comply with the rules and it puts us at a competitive disadvantage?

– Impermissible self corrections

– Garbage in – garbage out processing

– Aggressive plan designs

George O’Leary Resignation

• Resume padding• Falsified football

accomplishments• Did not earn Master’s

degree as stated on resume

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George O’Leary Resignation• John has applied to be an actuary at your TPA firm.

• On his resume he indicates that he has FASB

experience.

• You talk to one of your current employees who used

to work with John and she says that he knows very

little about FASB. He reviewed some FASB work for

a client, but never did any himself.

• Does this cause concern regarding his truthfulness?

George O’Leary ResignationCredentialsMary has applied to work for you. On her resume she

indicates she is an MSPA. Which of the following would

cause you to doubt her truthfulness?

A. She is not an MSPA, but is an enrolled actuary. She has not

applied because her employer would not pay her dues.

B. She was an MSPA, but let her credential lapse because she did

not pay her dues.

C. She is an MSPA, but her Membership has been suspended for two

years due to disciplinary actions.

George O’Leary ResignationAdvertising/Marketing

• What is the difference between positive

spinning in the marketing and being

truthful?

• Where is the line?

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George O’Leary Resignation• A TPA firm advertises that it has an

actuary and attorney on staff, but in

actuality they outsource both of these

functions.

• Is this puffing or dishonest?

Tim Donaghy – NBA Scandal• 2005 -06 and 2006-07 NBA

seasons

• Referee bet on games he officiated

• Plead guilty to 2 federal charges

• 15 months prison and 3 years supervised release

• Hurt NBA’s popularity

Tim Donaghy – NBA Scandal

UnintendedConsequences

• Divorce• Audit• Sale• Fire

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Salt Lake City Olympics• President and Vice President of

Salt Lake City bid committee paid more than $1.2 million in cash, scholarships, jobs, etc. to improperly influence votes of more than a dozen Olympic Committee delegates and their families.

• Argued they were Scapegoats for what was a common practice in the bid process to secure votes.

• Ten delegates resigned or were forced out in the wake of the scandal.

Salt Lake City OlympicsLet’s make a deal!

• You are asked to bid on a plan. It’d be your

biggest client.

• Client tells you in a phone conversation that

their daughter needs a job.

• You hire the daughter.

• You get hired by the client.

• Issues?

Pete Rose• Admits to betting on

baseball without knowing how drastic the penalties would be.

• Admits to betting on Reds to win while a manager

• Agrees to permanent ineligibility from baseball

• Barred from the Hall of Fame

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Pete Rose• When we act unethically, we harm the

integrity of our entire profession.

• E.g. – actuary in the 90’s; “Ok, what

contribution/FAS liability do you want?”

• Now we have PPA, ASC 715, ASOP 27 and

35, etc….

Golf

Why do you not hear much about

scandals in golf (except for Tiger

Woods’ infidelities)?

• Sport’s greatest attribute is its

reputation for honesty and

integrity

• Self regulate their profession

Golf• As Actuaries – we self regulate our profession

• Precept 13 of the Code of Professional Conduct

• “An Actuary with knowledge of an apparent, unresolved, material violation of the Code by another Actuary should consider discussing the situation with the other Actuary and attempt to resolve the situation. If such discussion is not attempted or is not successful, the Actuary shall disclose such violation to the appropriate counseling and discipline body of the profession, except where the disclosure would be contrary to Law or would divulge Confidential Information.”

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Questions?