How Come Madoff Slipped through the Cracks?

The topic today. Emotionally Intelligent regulation, inspection and reporting - a necessity for almost any organization.

Overheard on the streets: "All cultures steal."

A key phrase that comes to mind "Do it smarter, not harder."

There was a song back in the 60s by Al Wilson called "The Snake." The lyrics: "Oh shut up, silly woman," said the reptile with a grin, "You knew damn well I was a snake before you took me in."

Snakes have fangs. Rattles. No legs. Do you know a snake when you see one?

First: The wisdom of the words of Harvey Pitt, former chairmen of the SEC on regulatory changes. See the video clip: Harvey Pitt, CEO of Kalaroma Partners, former chairman of the SEC speaks to Martin Soong and Sri Jegarahaj on the Madoff scandal.

A bit of history if you live under a rock and have not heard about this fiasco. Allegedy $22 billion alone was discovered in October when the SEC finally moved in on Madoff's Ponzi scheme and it is suspected to get worse. Update Dec. 25 - Now thought to be $50 billion.

Madoff is currently on bail of $10 million.

The interview with Harvey Pitt is entitled: SEC is Badly in Need of an Overhaul: Analyst . "Don't mean to get your back up from the get-go," begins the interviewer:

The SEC's inspection and examination program is badly in need of an overhaul,
said Harvey Pitt, former chairman of the SEC, after the SEC failed to uncover the Madoff scandal even when red flags were raised. In the videod interview, Pitt tells CNBC's Martin Soong & Sri Jegarajah what needs to change -- not more regulation, not less regulation, but smarter regulation.

Complaints were launched re: Madoff years ago. In 2005, it was found Madoff had lied to or mislead the SEC and yet the SEC took no action (William Donaldson was chairman of the SEC at that time). Credible complaints must be investigated, notes Pitt.
_______________________________________________________

Lets disconnect for a moment from a federal regulatory agency and a $50 billion fraud, to take a look at your shop. Applications for daily life?

Complaints abound, I'm sure. How do you recognize a "credible" complaint? Well, it has to do with gut feeling. About the person making the report, to begin with; and about the person being complained about, to end with.

It's a twinge when you see someone, a sense that something's wrong, smelling a rat, knowing at the gut level, as Hamlet did, that "something is rotten in the State of Denmark," and likewise, a sense that the person "complaining" is credible. Because you have a sense of trusting them - you "feel like" you can trust them. Because you've had a lot of experience with people. A SENSE ... we keep coming up with that. It's our senses (sight, smell, touch, and internal feelings) that give us the most crucial information. When you say "I KNEW he wouldn't work out," and then go back and process how you knew, and what you did not pay attention. "Against my better judgement..." Some define intuition as "knowing without knowing how you know."

More businesses and firms are dealing with theft, deception and intentional fraud these days. I spoke with a lawyer the other day whose new secretary had forged firm checks during her first week (and is now incarcerated).

Hard times increase both the possibility and the opportunity.

It helps to have keen intuition ("gut feeling"). To increase yours, to recognize its signals, and to learn to trust it. Get in touch with your feelings ... your GUT feelings ... the knot in the stomach, the sense that something's not right, the twinge at the sight of someone, the hair standing up on the back of your head, knowing whose 'got your back' and who doesn't, who lies and who doesn't, the name of that tune you keep humming when you see her ...

Lets face it, even the TSA in the DFW airport has moved to give screeners more latitude in using their instincts. Why? You tell me!

It's not always on paper. It's within us, or within those who have well-developed 'feelers.'

The Fort Worth newspaper said that the TSA was planning to "get away from the by-the-numbers mentality used to create the TSA." They plan to vet passengers' reactions and intent, not just search for banned items. Hawley, administrator of the TSA was quoted as telling screeners, "We have seen more images, more people, more shoes than anyhody ... you know what normal looks like."

Do YOU know what "normal" looks like? Do you know what a snake looks like??

Like the other emotional intelligence competencies, intuition (gut feeling) can be developed. And why would you want to? In a teleclass I taught on intuition a couple of years ago, I asked the class how you know it's intuition. Someone replied, "It's when you are absolutely certain."

Last example, a coach I trained in the UK who uses emotional intelligence training for people in high-danger jobs like oil rigs and nuclear plants. She teaches them about their intuition and how and when to trust it, their gut feeling*. Trains them to get back in touch with those "feelers" that tell us "something just isn't right" or "something has changed." In a nuclear plant you MUST notice when something is different ... a strange hiss, a silence where there should be noise, a sneaky look ...

*gut feeling probably comes from the vagus nerve. According to wikipedia, the vagus nerve is:

... the only nerve that starts in the brainstem (within the medulla oblongata) and extends, through the jugular foramen, down below the head, to the neck, chest and abdomen, where it contributes to the innervation of the viscera.

You know how when something really hits you, you say "I had a visceral response"? The vagus nerve goes from the brain stem down into the intestines. Why an anti-depressant might make you constipated. Why when you're afraid, you might sweat, throw up or have diarrhea or be unable to breathe well. Why when you mistrust someone you might get 'nervous' - tight stomach, twitching leg, urge to run away.

Lastly, your "shop" may be your family. Your kids tattle on each other all the time, right? How do you know what to believe? My mom used to say she had eyes in the back of her head.

There are signs. Pay attention to them. Learn how YOUR intuition, or gut feeling, speaks to you.