Financial Services firms explore rebuilding trust against a backdrop of scandals and perjury

During the SPARK! Financial Services Executive Summit, James B. Stewart, a 1988 Pulitzer Prize-Winner and author of Den of Thieves, the No.1 national best seller about insider trading scandals in the 1980’s, spoke about perjury and scandals. Stewart’s talk in SAS’ new conference center gave attendees highlights to his book, Tangled Webs, which explores this decade’s scandals. His talk focused the attendees – all from financial services firms – on the repercussions of perjury to the US judicial system, the scandal’s stakeholders and the financial services industry.

Stewart’s talk – and his book – focus on four high-profile scandals: Bernie Madoff’s Ponzi scheme, Martha Stewart’s insider trading, Barry Bonds’ steroid use and Scooter Libby’s leak of classified information. According to Stewart, all of these crimes originated with one crime – perjury, false statement.

The US criminal justice system rests upon the truth: Lawyers are legally bound to defend only clients that they believe are telling the truth. Witnesses are bound to tell the truth under oath. And, jurors are expected to convict based upon true witness of the facts. “We live in an honor code, if that code breaks down, the system is frozen,” said Stewart.

According to Stewart, if Madoff had been referred to the Justice department when the SEC first suspected perjury, he would have been unmasked in weeks and not years. Instead, his assets grew to US $65 billion and cost investors an additional $45 billion in losses.

“Perjury and lying leaves devastation and victims, and covers larger crimes. Lying doesn’t happen in a vacuum.”

Why do people lie?

• Help the employer – they see it as a benign motive.
• Retaliation – they’ve been passed over for promotion or feel slighted in some other way.
• Everyone else is doing it – perjury and lying have had little or no repercussion.
• Loyalty – “When loyalty trumps the truth, then the people who are in the position to command loyalty – the most powerful - rule. This is the law of the jungle.”

What can Financial Services firms do?

Stewart said that there’s no easy answer; it wouldn’t be so pervasive if there was. According to Stewart, stopping perjury starts at the top of organizations and at the top of our society. “Make truth telling important throughout the organization,” he said. “Perjury is a real crime; it’s a felony; don’t accept anything less.”

“I think that what the SEC failed to recognize in investigating Madoff is that people do not lie for the fun of it or for the sport of it. They lie for a reason, and they lie because they are hiding something.”

This is something that Stewart believes should be taken seriously by the financial services industry because lying – or contributing to the behavior – is the opposite of transparency. He believes that the cloud that the industry has been under in recent years can only be removed with a renewed focus on transparency and openness.

His final tips include:

• Enforce an environment of openness and transparency.
• It is not enough to have a code of ethics – enforce it.
• Honor the truth in your daily life.

Attendees received an autographed copy of Stewart’s new book, Tangled Webs. You can watch an MSNBC Today interview with Stewart and read an excerpt of the book here. I’m sure you’ll want to get your own copy of his book too – look here.