A "Pump and Dump" Stock Scheme and a University's "Incredible Gift"

Here is a new twist on how respected academic institutions have gained from less than respectable donors.  As reported by the Palm Beach (FL) Post,

John David Mazzuto and a colleague stole more than $60 million from his former company and its investors, New York prosecutors said Tuesday afternoon.

... the Manhattan District Attorney said today that, while he was in bankruptcy from 2002 to 2009, he siphoned more than $15 million from Industrial Enterprises, and used the money to support 'a lavish lifestyle using millions of company dollars for homes, travel, and personal expenses.'

They included Mazzuto's 7,715-square foot house at 11503 Green Bayberry Drive. Palm Beach County records show a corporation managed by him bought it for $2.6 million in 2007. No mortgage was recorded, suggesting the company bought it outright.

New York prosecutors said Mazzuto also bought a $3 million home in the exclusive Long Island community of Southampton and spent more than $500,000 to fly on private jets.

Palm Beach Gardens police arrested Mazzuto Thursday and investigators from New York were in a Palm Beach County court Monday to collect him.

The New York indictment alleges Mazzuto and Cleveland, Ohio, attorney James W. Margulies, the corporation's general counsel, illegally issued millions of shares of stock and used fraud to inflate its value and deceive investors.

Mazzuto and Margulies are charged with grand larceny, scheme to defraud, conspiracy, falsifying business records, and violations of New York State's securities fraud law.

The district attorney said the two illegally issued millions of shares to family, friends, and associates.

'The defendants stole from the corporation and legitimate investors, and engaged in a variety of fraudulent accounting and securities practices to disguise the theft and pump up the value of the stock,' the release said. It said one outside investor lost more than $20 million.

'This was the wholesale looting of a public company,' Manhattan District Attorney Cyrus R. Vance, Jr., said in a statement.

A 2007 class-action lawsuit filed by investors alleged Mazzuto had a long history of unscrupulous business practices.

It also alleged Mazzuto used more than $100,000 from insider trading to buy a Porsche for his girlfriend.

The suit said the federal Securities and Exchange Commission was investigating Industrial Enterprises for insider trading and accounting fraud during Mazzuto's tenure. The SEC has declined to comment.

Mazzuto and Industrial Enterprises, saying the accounting mistakes were unintentional, agreed in April to settle the lawsuit for $3.8 million, records show. The settlement still is awaiting the court's approval.

Industrial Enterprises has been negotiating since October for Yale to return a gift that paid for a head coach and a new all-weather baseball practice facility.

Lawsuits alleged the bequest included improperly issued stock worth $1.7 million.

The New York Times added some detail about Mezzuto's dontation to Yale:

The news release called John D. Mazzuto one of the 'greatest supporters' of the Yale University baseball team.

Mr. Mazzuto, a 1970 Yale graduate who played shortstop for the team, had donated to the baseball program about $1.5 million worth of shares in a company he owned. The university rewarded him by naming a new practice facility after him and his wife — the John and Theresa Mazzuto Field — and by adding his family name to the baseball coach’s official title: the Mazzuto Family Head Coach of Baseball.

'John has bestowed upon Yale baseball an incredible gift,' John Stuper, the baseball coach at Yale, said in the release, dated April 17, 2009. 'His support of our program has been absolutely phenomenal.'

Manhattan prosecutors said Tuesday that Mr. Mazzuto’s support of his alma mater was illegal.

Mr. Mazzuto, 61, was indicted on charges of fraudulently inflating the value of a company he owned to mislead investors into buying worthless shares. He gave shares of the company, Industrial Enterprises of America, to family and friends and to companies he controlled, and they sold them on the open market, giving some of the profits to Industrial Enterprises, prosecutors said.

Those profits made Industrial Enterprises seem as though it was in better financial health than it actually was, raising its stock’s value, prosecutors said.

'It’s a new twist on a pump-and-dump,' said Garrett A. Lynch, the assistant district attorney handling the case.

Mr. Mazzuto also gave shares of the stock to Yale, prosecutors said. The university sold its shares before their value plummeted and earned about $1.5 million, prosecutors said.

Yale officials did not know that Mr. Mazzuto was issuing stocks illegally, prosecutors said, although some of the recipients of the shares did conspire with him.

A report in the Wall Street Journal added:

Industrial Enterprises, which was based in New York at one point, sought Chapter 11 bankruptcy protection in May 2009. [a month after Yale announced the donation - Editor]

A shareholder lawsuit, filed in federal court in Manhattan in 2007, alleged the company engaged in accounting fraud by 'materially overstating' its revenue between December 2006 to November 2007. The company announced in November 2007 it had overstated revenue by millions of dollars for two quarters that year.

For the sake of fairness, I must emphasize that the allegations against Mr Mezzuto and Mr Margulies are just that. However, there ought to be considerable suspicion that something unethical was going on, at least based on the company's admission of over-stated earnings, Mr Mezzuto's provision of the gift while he apparently was in personal bankruptcy, and (at least in retrospect), the company's filing for bankruptcy weeks after the gift of its stock was announced . Thus, Yale's acceptance of the gift, and its effusive accolades to its donor at best suggest an attitude of "what, me worry."

At best, it seems that our once unimpeachable academic institutions have become so eager to raise money that the provenance of donations is no longer of interest to them.  Furthermore, it seems that anyone who provides a big donation becomes a local hero, regardless of the source of the donation.  Embracing donations arising out of questionably ethical situations implies a tacit endorsement of the means used to provide them.  Our universities ought to remember that their mission is teaching, research, and for academic medical institutions (as Yale is), patient care.  It may be true that if there is no margin, there is no mission, but if margin comes first, regardless of where it comes from, there soon will be no mission. 

Post Title → A "Pump and Dump" Stock Scheme and a University's "Incredible Gift"

Leaders of Discredited Financial Rating Agencies as Leaders of Health Care

This is the latest in our informal series on the cross-linkages between the thinking and leadership that lead to the global financial collapse/ great recession and that current in health care.  Last month, a US Senate sub-committee held hearings on the role of the rating agencies, actually for-profit corporations that evaluated securities, including derivatives, in the collapse. 

The Fundamentally Conflicted Rating Agencies

To briefly provide some background, these agencies were hired by the firms that created these securities to evaluate them.  Because the securities were complex, they were hard for investors to evaluate.  Investors had become used to using the rating agencies' evaluations as benchmarks for the quality and riskiness of complex securities.  Many did not seem to realize that the agencies themselves were for-profit corporations, or subsidiaries thereof, which made more money the more securities they rated.  The rating agencies gave many of their highest ratings (AAA) to securities that later failed.  (See an informal video discussion by corporate governance expert Robert A G Monks here.)

Some key quotes from the news coverage follow.

Former credit rating agency officials said on Friday that the quest for market share fueled a drive for short-term profits, sacrificing credit quality in the process.

Eric Kolchinsky, who was in charge of the Moody's (MCO.N) unit that rated subprime CDOs, or collateralized debt obligations, said that people 'across the financial food chain, from the mortgage broker to the CDO banker, were compensated based on quantity rather than quality,' according to testimony prepared for a Senate panel.

'The situation was no different at the rating agencies.'

from Reuters

Former Moody’s Investors Service and Standard & Poor’s employees said they were excluded from assessing mortgage bonds if they questioned Wall Street’s conclusions and that credit-rating companies focused on protecting business at the expense of accurate grading.

Richard Michalek, a former managing director in Moody’s structured products derivatives group, told the Senate Permanent Subcommittee on Investigations at a hearing today that managers said he was 'not welcome on deals' involving certain banks.

Eric Kolchinsky, who led the Moody’s group that rated collateralized debt obligations made up of mortgage bonds, said he was berated by his boss when the company lost business after implementing more conservative ratings.

S&P wrongly concluded that its increasing profits amid an inflated U.S. housing market was based on 'superior management skill and insight,' said Frank Raiter, a former managing director at the company. In reality, regulators had made the firm part of 'an oligopoly' by requiring investors to hold assets it rated, Raiter said.

per Bloomberg

The documents show, sometimes in excruciating detail, the conflicts of interest that many claim lie at the heart of the ratings business model and the concerns of employees about what was happening inside the companies well before the crisis broke.

One employee at Standard & Poor's, the world's largest rating agency, said its handling of awkward questions in the summer of 2007 made it 'sound like the Nixon White House'.

And,

As one Moody's managing director wrote to his superiors in 2007, the company's errors, made it look 'either incompetent at credit analysis, or like we sold our soul to the devil for revenue, or a little bit of both'.

per the Financial Times

The two companies targeted by these hearings were Moodys, and Standard & Poors (a subsidiary of McGraw-Hill Inc).

Overlaps with Health Care Leadership: Moody's Corporation

Perusal of the roster of the Moody's board of directors in 2008, per that year's proxy statement, reveals the following overlaps with health care leadership, of its 8 directors.

Connie Mack - is also on the boards of EXACT Sciences Corporation (a biotechnology company), and Genzyme.  He is the chair of the H. Lee Moffitt Cancer Center.

Henry A McKinnell Jr - was chairman of the board and CEO from 2001-06 of Pfizer Inc.

Basil L Anderson - is a member of the board of directors of Becton Dickinson.

Overlaps with Health Care Leadership: McGraw-Hill Inc

Via the company's 2008 proxy statement, of 12 directors:

Sir Winfried Bischoff - is a director of Eli Lilly and Company.

Linda Koch Lorimer - is Vice President and Secretary of Yale University, and a Director of Yale-New Haven Hospital.

Kurt L Schmoke - is a Trustee of the Howard Hughes Medical Institute

Sidney Taurel - was chairman and CEO of Eli Lilly and Company.

Summary

So, in summary, the 20 board members of one for-profit "ratings agency," and of the corporation of which the other major "ratings agency" was a subsidiary, served on the boards of 2 biotechnology corporations (EXACT Sciences Corporation and Genzyme), one medical device company (Becton-Dickinson), one pharmaceutical company (Eli Lilly) , 2 major academic medical centers (Moffitt Cancer Center and Yale-New Haven), and one medical research institution (Howard Hughes).  Two were recent former CEOs and chairmen of the boards of 2 of the world's largest pharmaceutical companies (Pfizer and Eli Lilly). 

Most of these health care organizations have been involved with cases we have discussed on Health Care Renewal (see links above).

Given the serious concerns about the conflicts of interest that became the core of these corporations' business models, and their central role in the global financial collapse, one has to wonder why so many of the directors who presided over them still have such influential positions in health care organizations?

As we have pointed out, as the world economy was driven to near ruin by "masters of the universe," some of the same also became leaders of academia and academic medicine in their spare time. Maybe this made sense 10 or 20 years ago, but why does it still make sense? On the other hand, now that we understand how bad the leadership of finance really was, it is a little easier to understand why the leadership of health care has become so bad. It seems reasonable to hypothesize that some of the problems of academia, and particularly the problems of medical academia, may have been at least enabled by leadership more used to working in an increasingly amoral marketplace than to upholding the academic mission. The failures of the leadership and governance of finance thus suggest we need to re-examine the leadership of health care.

Post Title → Leaders of Discredited Financial Rating Agencies as Leaders of Health Care

Abbott Laboratories Settles

Another day, another settlement, this time,as reported by Reuters:

New York Attorney General Andrew Cuomo said Abbott Laboratories (ABT.N) and French drugmaker Fournier have agreed to pay $22.5 million to settle a multistate lawsuit that accused them of conspiring to block generic forms of their TriCor treatment for triglycerides.

The drugmakers will pay the money to New York, 22 other states and the District of Columbia, Cuomo said in a news release on Thursday. About $4.5 million goes to New York.

The lawsuit, filed in Delaware federal court in March 2008, alleged Abbott and Fournier schemed to block generics when competitors started to develop versions of TriCor, used to treat a type of blood fat that increases the risk of heart disease.

Cuomo said Abbott and Fournier made minor changes to TriCor that provided no clinical benefit, but were meant to prevent pharmacists from dispensing less-expensive generic versions of TriCor.

The states alleged the drugmakers also thwarted generic competition by filing baseless patent-infringement suits against generic drugmakers, thereby securing a monopoly for blockbuster TriCor.

The ongoing march of legal settlements of charges of various kinds of wrongdoing by diverse health care organizations is a reminder of the pervasiveness of bad conduct by such organizations. We have commented repeatedly (see some posts here) such settlements, including the "corporate integrity agreements" now frequently attached to them, seem to have done little to deter bad behavior. Usually, the companies involved only need to pay fines, and no individual who performed, directed or approved unethical or illegal acts will suffer any negative consequences. I submit once again that such fines are viewed merely as costs of doing business by the affected companies, and do not deter future bad behavior.

While each new entry in the ongoing march of settlements merits a few lines in the business media,separately, or in the aggregate these settlements rarely get noticed by health services or health policy research, or receive attention in health policy circles.  Nor do the contrasts between the conduct revealed by such settlements and the rosy public relations of the settling companies attract much attention.  For example, Abbott Laboratories proclaims its "promise,"

We are here for the people we serve in their pursuit of healthy lives. This has been the way of Abbott for more than a century - passionately and thoughtfully translating science into lasting contributions to health.

Our products encircle life, from newborns to aging adults, from nutrition and diagnostics through medical care and pharmaceutical therapy.

Caring is central to the work we do and defines our responsibility to those we serve:

We advance leading-edge science and technologies that hold the potential for significant improvements to health and to the practice of health care.

We value our diversity - that of our products, technologies, markets and people - and believe that diverse perspectives combined with shared goals inspire new ideas and better ways of addressing changing health needs.

We focus on exceptional performance, a hallmark of Abbott people - worldwide - demanding of ourselves and each other because our work impacts people's lives.

We strive to earn the trust of those we serve by committing to the highest standards of quality, excellence in personal relationships, and behavior characterized by honesty, fairness and integrity.

We sustain success - for our business and the people we serve - by staying true to key tenets upon which our company was founded over a century ago: innovative care and a desire to make a meaningful difference in all that we do.

The promise of our company is in the promise that our work holds for health and life.

The settlement of allegations about a scheme to maintain a monopoly on a profitable drug raise doubts about the company's committment to "earn the trust of those we serve" through "behavior characterized by honesty, fairness and integrity."  Whether the disconnect between this settlement and the "Abbott Promise" will affect the stratospheric earnings of Abbott executives (for example, in 2008, the total compensation of Abbott CEO Miles D White was $28,335,494 per the company's 2009 proxy statement) is a question that could be put to the company's Board of Directors.  Perhaps our readers at Yale University might want to ask Dr Robert J Alpern, Dean of the Yale  School of Medicine, who just joined the Abbott Board of Directors in 2008 about that.

Post Title → Abbott Laboratories Settles

Yale Settles

The parade of settlements continues. The basics of this story were reported by AP:

Yale University has agreed to pay $7.6 million to resolve allegations that it broke the law by mismanaging federally funded research grants, federal authorities announced Tuesday.

The civil settlement with the government resolves allegations that some Yale researchers at times charged a federal grant account for costs unrelated to grant objectives. The government also alleged the researchers wrongfully charged 100 percent of their summer activity to grants when the researchers spent significant time on unrelated work.

At issue were allegations that grant money was used to cover costs that did not relate to the objectives of the specific grant involved.

Researchers allegedly were motivated to carry out wrongful transfers when the grant was near its expiration date and they needed to spend down the remaining grant funds, authorities said. Regulations require that unspent grant funds be returned to the government.

The wrongful salary charges stemmed from the fact that researchers are not paid their academic-year salary by Yale during the summer, authorities said. The only salary received by the researchers during the summer came from what they charged to federal grants, prosecutors said.

A bit of the news coverage focused on why these problems may have occurred. The Yale Daily News reported:

The thicket of subpoenas, audits and new compliance policies was a source of strain and sometimes a point of contention between faculty members and administrators, who sometimes tended to see the burden of improving grant accounting as resting on each other.

“I recognize that this investigation has been stressful for many members of our faculty and staff, and I also recognize that federal regulations are sometimes burdensome,” University President Richard Levin said in a letter to faculty and staff Tuesday.

Also, the New Haven Register reported:

When asked if any researchers were disciplined, Yale spokesman Tom Conroy said, 'the focus of the investigation was Yale’s grant accounting systems and controls, not actions by particular individuals. Yale now has in place a comprehensive training program for faculty and staff on relevant aspects of federal grant accounting.'

When I first got involved in the world of US government grants as a medical school faculty member, I was told that I, as the Principal Investigator, would be responsible for the scientific conduct of the project. On the other hand, I was told that the organization receiving the grant, e.g., usually a university or research institute, would be responsible for the fiscal conduct of the grant. Therefore, I wonder why there was "confusion" in this case about who was supposed to do grant accounting. Someone correct me if this has changed, but I thought that in this case, it was the university administrators who were supposed to do the grant accounting, not the faculty. (Note that the university got the grants, not the faculty members as individuals.)

In that light, the statement of the Yale spokesman is illuminating. According to him, no individual was responsible for the problem. The fault rested with the "grant accounting system and controls."

That reminds me of the 1960s, when some hippies were heard to mutter, "it's the system, man, that's bad."

Of course, the "system" did not grow like a tree, but was created by people. So if the system's users were not at fault, then its designers and maintainers were.

However, it seems that when something goes wrong in a health care organization, it is never the administrators and executives who are at fault. Sometimes a low-level bureaucrat may be scapegoated. But the fearless leaders can do no wrong. They are never to blame. They are never punished.

I submit that it is this impunity, this lack of responsibility that is a fundamental problem with health care today. Doctors are often accused of assuming god-like authority. We doctors, unfortunately, are too often responsible for what has gone wrong. But at least there is some redress against doctors when they act in their clinical capacity. Doctors are sued for malpractice (sometimes unfairly, sometimes with good reason.) Doctors are subject to professional disciplinary boards, and can have their licenses suspended or revoked

But when do university, hospital, or corporate executives ever pay a penalty for mistakes, or even malfeasance?

As long as they have no incentive not to do wrong, they will continue to do so.

Post Title → Yale Settles

A Truly Appalling Lawsuit Against Duke University

Most everyone is aware of the Duke lacrosse team scandal, the debacle about alleged rape by Duke lacrosse team students that led to the resignation of prosecutor Nifong for prosecutorial misconduct, exoneration of the accused, an expose of the radical agendas of a subset of Duke's faculty, and a great deal of national publicity, or, I should say, notoriety.

Now, in Dec. 2007 several of the team members have filed a civil suit. The lawsuit filing documents are downloadable from these links (PDF files):

Part 1 (100 kb PDF)
Part 2 (1.3 Mb PDF)

I recommend downloading and perusing these in their entirely. Stunning - and frightening.

Using Adobe Acrobat, a search in them upon the term "medical" is of great concern. Named in the suit as defendants are Duke University Health Systems, a private diagnostic clinic contracted to Duke, a number of physicians and RN's, and unversity officials overseeing medical affairs.

What caught my attention were:

• A massive conspiracy to deprive three young men of their rights under the U.S. Constitution, of Stalin-police state proportions
• Sections on production of falsified medical records to support fabrications regarding sexual assault examinations
• The naming of a number of Duke medical center and medical center-associated officials including the Chancellor for Health Affairs (a physician Victor Dzau MD) as direct participants by commission and/or omission (e.g., indifference to, and failure to act against obvious impropriety)
• The collusion or tepid reactions of the most senior Duke officials right up to the Chairman of the Board of Trustees.

Overall, this story would make for the most stunning of movies of Serpico proportions - and probably will be, and should be.

If the allegations are even partially true, we have the most candid expose of the severe state of moral decay that afflicts our educational system (a system that produces our leaders of other organizations), our healthcare system, our justice system, and our culture.

More on the Duke situation can be found at this extensive, well-written fellow blogspot site, put together by one non-Duke professor named KC Johnson, Durham-in-Wonderland.

How I became aware of this is a story unto itself.

I noted the following passage in a polemical November 2007 article most ironically entitled Academic Freedom: The 'Danger' of Critical Thinking", International Studies Perspectives 8 (4), 396–400, doi:10.1111/j.1528-3585.2007.00306.x by Duke Professor of Asian and African Languages and Literature Miriam Cooke (fulltext here):

In this time of war that allows some people to lie and cheat, it is taboo for others to think critically ... It is dangerous even "to speculate about the relation between this war (in Iraq) and the geopolitical interests of Israel." These are the words of Paul Gilroy, who, at the time of speaking, was chair of African-American studies at Yale. Enraged, his colleague Scott Siluerstein compared him with Hitler and claimed that his words "illustrated the moral psychosis and perhaps psychological sadism that appears to have infected leftist academia." (Younge 2006).

This discovery led me to a literature search that led me to the Duke lawsuit documents. Cooke is profiled here.

Cooke actually misquotes a misquote by writer Gary Younge in the British newspaper The Guardian in an article "Silence in Class", April 4, 2006. In turn, Younge had misquoted an editorial authored by me that appeared in the Wall Street Journal on April 17, 2003 (see this link for my original.)

To be more precise, I should say that Younge used the "art of political war" rhetorical ploy utilized to discredit anyone who even writes about history's worst figures and any favored academic/politican/etc. in the same essay. As an act of obfuscation and diversion in the interests of ideological/political warfare, the ploy is to say the author is comparing the subject to history's worst figures, or even equating them. Cooke then parroted Younge's rhetoric.

Why the diversion and obfuscation? To obscure that I was actually pointing out that dangerous ideas -- especially crackpot conspiratorial ideas held by numerous very notorious historical figures dating back centuries -- have dangerous consequences. I was also commenting on the proven bigotry, cruelty, crassness, and insensitivity of statements made by deGenova, Baraka, Gilroy and others towards Israel, Holocaust victims and their families. (If you want a flavor of what many radical academics write, say, or think of as brilliant work, see here and here as examples.)

This ploy and lexical, semantic, contextual, and other games often seem the limit of the capability for debate of far too many of today's academics and mainstream media writers. (Where they learn these tactics, I do not know, but perhaps there is some sort of training fellowship.)

Duke Prof. Cooke didn't bother to contact me, a fellow academic, nor apparently do a simple google search or utilize the considerable informatics resources of her own university's library to find my original Wall St. Journal letter and my online response to Younge, on AOL at the time and now here. (Another possibility is that she did find them and ignored them, of course.) Cooke simply parroted Younge plus for literary effect invented my being "enraged" at my "colleague" (in fact, I rolled my eyes at Gilroy's statements, as one does towards the drivel coming from the Ivy League these days, and a simple fact check would have shown that I was not Gilroy's "colleague" and that our times at Yale did not intersect).

In summary, academic research for this tenured professor and Oxford graduate consists of parroting secondary sources such as The Guardian as fact, inventing events and relationships that did not exist, and not bothering to check primary sources either directly or indirectly, a fundamental tenet of reputable academic research. Or perhaps Cooke chose to ignore primary sources, a rather shoddy and irreputable approach to scholarly research. To Cooke, "critical thinking" apparently means "semantic legerdemain and reckless criticism of everything she does not agree with."

I subscribe to a different definition, consistent with the teachings of my early mentor Victor P Satinsky, inventor of the Satinsky clamp and many other cardiothoracic surgery tools and techniques used to this day. Dr. Satinsky ran ran rigorous programs emphasizing critical thinking, responsibility, and clear, direct language in the interests of patient care:

Critical thinking means correct thinking in the pursuit of relevant and reliable knowledge about the world. Another way to describe it is reasonable, reflective, responsible, and skillful thinking that is focused on deciding what to believe or do. A person who thinks critically can ask appropriate questions, gather relevant information, efficiently and creatively sort through this information, reason logically from this information, and come to reliable and trustworthy conclusions about the world that enable one to live and act successfully in it.

(It's not a simple matter of incompetence. "Quackademics" who do not believe in reason and logic - the tools of the "oppressors" - are largely incapable of true critical thinking. Hysterical rants, semantic trickery, obfuscation they can do. Distortions and mistruths are no problem for them, since in their minds the means justifies the ideological ends. Put plainly, they are deceptive liars. But they are not incompetent. In the Art of Political War, they are actually quite competent. It does, however, scare the daylights out of such academics when people who do think rationally have "got their number" on that particular skill. Thanks to advances in information and communication technologies, an increasing number of ordinary people are "getting their number." Of that they are truly terrified. But I digress.)

Not surprisingly, I discovered that Cooke was a member of the "Group of 88", a group of Duke professors who apparently gave the accused students a behind-closed-doors fair trial (of course, defendants' presence not required), then lined them up and had them figuratively shot with a well-publicized statement implying their guilt. From the Inside Higher Ed article linked above:

... The 88 signatories affirmed that they were “listening” to a select group of students troubled by sexism and racism at Duke. Yet 8 of the 11 quotes supplied from students to whom these professors had been talking, 8 contained no attribution — of any sort, even to the extent of claiming to come from anonymous Duke students. Nonetheless, according to the faculty members, “The disaster didn’t begin on March 13th and won’t end with what the police say or the court decides.” It’s hard to imagine that college professors could openly dismiss how the ultimate legal judgment would shape this case’s legacy. Such sentiments perhaps explain why no member of the Duke Law School faculty signed the letter.

I contacted Cooke, pointing out her errors and providing rather sarcastic commentary on how I was part of the Great Walt and Mearsheimer Cabal against academic freedom (a metaphor for another rather tenuous and tendentious piece of 'research' from yet another Ivy, Harvard). I have not received any reply. This is typical of academic tyrants, who are cowards when confronted outside of their power base. I contacted by email and phone the office of Duke President Richard H. Brodhead inquiring if Brodhead believed citing secondary sources constituted good research practice. He also has not replied.

Finally, I wonder if current Duke president Brodhead, who was an official at Yale until 2004 and implicated in this Duke lawsuit for sins of omission and commission, was involved in events covered in the previous post about an ongoing Federal investigation of Yale research grant accounting ("Lux et Veritas, or Trust But Verify? Yale discovers eDiscovery"). An interesting Powerpoint presentation on that matter is here (PPS file).

I think a comment made on the Duke-in-Wonderland site is particularly apropos:

"Another development on the local Duke scene is the “raised consciousness” of sensible alumni and institutional friends ... Any intelligent Duke alumnus of whatever age should now realize that he or she probably has more sensible and constructive ideas that many prominent Duke faculty."

This Duke disgrace is perhaps an epitaph for today's tenured, $100,000+ annually, pot-smoking, "oppressed" 1960's misfit-dominated academia.

-- SS

Addendum: there is much wisdom in this posting by KC Johnson regarding intellectual decay in academia. Many of the points raised also apply to the matters discussed on this blog. That academia sets the tone through its influence on students suggests that one path to "healthcare renewal" is via "academic renewal."

Post Title → A Truly Appalling Lawsuit Against Duke University

Lux et Veritas, or Trust But Verify? Yale discovers eDiscovery

Recent amendments to the Federal Rules of Civil Procedure concerning the discovery of “electronically stored information” have created headaches for organizations that rely extensively on digital information and communication technologies (ICT's). Which includes most organizations in the 21st century. No fooling.

Roy Poses has written about conflicts of interest and other forms of ethical problems in academic medical centers in posts such as here, here and here.

Add Yale to the list. Further, add Yale to the list of organizations discovering the eDiscovery is no laughing matter. In this presentation (Powerpoint .pps file) by Yale's Information Technology Services entitled "What The New e-Discovery Rules Mean to Me", we discover that Yale has perhaps discovered the wages of professorial sin.

Those wages are June 26, 2006 subpoenas from HHS, NIH, DoD, NSF, and NASA regarding all information related to 47 grants from 13 departments. The FBI was involved, with FBI agents going at night to faculty and staff homes and to one vacation destination for questioning (that must have been worthy of scenes for a movie). The investigations are apparently still underway.

The issues include allocation of research expenses, reporting of faculty effort devoted to grants (i.e., claiming 25% of time is devoted to five grants), and numerous matters relating to grant administration including: cost transfers, allocation of expenses, effort, administrative charging and subaward monitoring, and conflict of interest.

Of note is a Feb. 2006 HHS audit of a Yale subcontract from UMass Medical School causing $194,000 of a $572K NIH award to be disallowed due to irregular cost transfers, effort % allocation, and cost allocation methodology. This may have been a trigger for further inquiry.

For starters, 600+ individuals were named as "people of interest", 400+ accounts were put on legal "hold" status, 100 individuals's disks were 'captured.'

In an example of the perils of eDiscovery and unethical people, an altered email was discovered. A reference to "spending down" a subgrant that was soon to expire had been deleted.

Yale president Levin wrote in the Yale Daily News that "the amount of documents that have been requested by the federal government amounts to ... hundreds of thousands, even millions of pages." An entire floor of class A office space was reserved for the auditors and lawyers reviewing documents.

The IT department actually ran out of tape and disk storage in backup system servers (probably due to legal hold requirements), people became afraid to delete anything, and of course there was "tension" between faculty and administration regarding mandatory faculty training in research administration and in actually obeying the directives for document preservation and retention in fulfilling the federal subpoenas ("Faculty Object to Searches, Yale Daily News, Feb. 2, 2007):

As a federal investigation into possible mismanagement of grant monies at Yale enters its eighth month, some professors are speaking out against what they say is an inappropriately invasive response from the University.

At a faculty meeting Thursday, some science professors said the University is impinging on privacy and academic freedom by copying documents from professors’ hard drives and requiring faculty members to undergo mandatory training or supervision in the grant administration process. But administrators said they have already addressed one of the faculty’s concerns about the training, and that they have simply taken steps required by government subpoenas.

Imagine that, tenured Ivy professors having to undergo mandatory training in how to administer federal money appropriately and turn over records. The horror! Must be a Karl Rove/Joe McCarthy/David Horowitz plot to destroy academic freedom!

The resources required for production are perhaps yet another cost of doing academic business "the old fashioned way."

It is amazing that this story has received precious little coverage nationally. The NYT had a brief article in 2006. I only heard about this recently, from a former colleague. Perhaps this is another example of the Anechoic Effect.

Yale's clinical operations have seen federal investigation once before. See "Insufficient IT Management Depth Results in Justice Dept. Investigation, Millions of Dollars in Fines."

That story was more about incompetence rather than malfeasance, however. Ironically, when I was Yale School of Medicine junior faculty in Yale Center for Medical Informatics, I was charged with teaching postdoctoral fellows about NIH ethics guidelines. The tenured senior faculty I was working for just didn't have the time. See "Anti-social informatics at Yale" for a flavor of Yale kultur:

At that link is a detailed case example from the late 1990’s of impaired efforts to implement clinical information technology via wasted resources and opportunity, attempted misappropriation of intellectual property by prominent tenured faculty for private use, unauthorized practice of law in the Office of the General Counsel, blacklisting, extortion, and retaliation treated with a blind eye and silence by university officials at this prominent university.

I am not at all sorry to see this latest investigation. I believe Yale needs a house cleaning. I am going to attempt via the FOIA to find out who, if anyone, has been found to have been "naughty" via the federal investigations.

While I am perhaps experiencing a degree of Shadenfreude, the current situation is very unfortunate for society, of course. Time and effort that could have been spent improving society is being spent trying to uncover and correct behaviors of the privileged and protected involving taxpayer money -- at taxpayer expense, of course. Let's hope Yale can live up to its motto of "Lux et Veritas." My experiences showed that motto to ring just a bit hollow (or, perhaps a better metaphor would be that the motto was just a bit transparent).

Finally, by way of speculation, the DoD has also had its issues with Yale. Payback time, perhaps?

-- SS

Post Title → Lux et Veritas, or Trust But Verify? Yale discovers eDiscovery

Arbitrator Finds Yale-New Haven Hospital "Spreading Disinformation"

Several Connecticut newspapers have reported on findings against prestigious Yale-New Haven Hospital, the main teaching hospital for Yale University, by an independent arbitrator. Per the Hartfourd Courant,

Arbitrator Margaret Kern said the hospital ruined any chance for a fair election by intimidating union supporters and spreading misinformation.

She ordered the hospital to pay SEIU $2.3 million, to cover its organizing expenses and $2.2 million to about 1,700 hospital employees eligible to vote in the election. The second figure is the amount Yale-New Haven paid to IRI Consultants to Management Inc., the company it hired to coordinate its campaign against the union.

'Employees were deprived of the right to truthful information, the right to do their job uninterrupted by solicitation, and the right not to participate in captive audience meetings,' wrote Kern.

The New Haven Register reported that after a long standing labor dispute, Yale-New Haven Hospital and the union agreed

not to disparage each other and to conduct a factual campaign. The hospital also committed to not initiate one-on-one conversations with workers; not conduct mandatory meetings; not use consultants to abrogate the agreement, while also promising to abide by the arbitrator’s rulings.

Kern found Y-NH violated all these points, conducting 98 mandatory meetings where workers were forced to listen to managers’ 'feelings and fears' about the union and misrepresentations about the hot button issue of union dues.

She said there was strong evidence that the consultants were keeping a running count of the workers’ leanings and that the violations were not the work of a 'few rogue managers.'

'The employer’s conduct here was a methodical dismantling of the terms and commitments of the election principles agreement,' Kern said.

I can understand that the hospital may have had rational reasons not to want the union to organize its workers. But it seems to make some promises Yale-New Haven makes in its mission statement, including

To provide sensitive, high quality, cost effective health care services to all patients, regardless of ability to pay.

To serve the community as a public health advocate and provide support and services which respond to the area's health care needs through health education, health promotion and access to care.

ring pretty hollow, after the hospital has been found to be "intimidating union supporters and spreading misinformation."

Would you trust a hospital management who spreads "disinformation" as part of a labor dispute to really support the best patient care, teaching, research, and community service?

Spreading disinformation also does not exactly fit with Yale University's motto, "lux et veritas," light and truth.

This seems to be another example of mission hostile management, this time by the leaders of one of America's premier medical centers.

Post Title → Arbitrator Finds Yale-New Haven Hospital "Spreading Disinformation"

Banning Logo Coffee-Mugs, Soliciting $5 Million Donations

A story from the Connecticut Business Journal suggests the extent that medical schools now seek money from for-profit health care corporations.

The Yale School of Medicine has mounted an aggressive fundraising campaign targeting drug makers, according to internal university documents recently reviewed by Business New Haven.

The documents, part of a confidential briefing for School of Medicine Dean Robert Alpern, outline an effort to raise more than $40 million in philanthropic dollars through 2008 from pharmaceutical companies.

Fund-raising efforts involving specific pharmaceutical companies included,

• "a suggestion to send Yale President Richard C. Levin to Germany to meet with Bayer Pharmaceutical's president to help secure $5 million in funding for the new Yale Cancer Center."
• "Merck & Co., under fire in recent years in the Vioxx scandal, is targeted for a $5 million appeal for the Yale Mouse Phenotyping Center, Yale officials confirmed. "
• "Yale has a particularly close relationship with Pfizer, which opened a clinical research facility adjacent to the university in 2005. Pfizer and the university also collaborated on the Yale Positron Emission Tomography Center, which opened earlier this year with help from a $5 million gift from the drug maker and a pledge of $2 million a year in research funding. "

The size of the total fund-raising effort is notable.

Corporate and foundation donations make up about 25 percent of Yale's annual fundraising take, [Vice President for Development Inge] Reichenbach says, with the rest coming from alumni donations. The pharmaceutical company push is part of a larger five-year effort, which includes a $100 million campaign for the Yale Cancer Center.

Reichenbach says that development officials often highlight links between ongoing research and a company's interests. Pharmaceutical companies have a natural stake in medical research and fund efforts on all levels at many schools, she adds.

'Basically we are making matches. That's what we do, we provide matches of interest,' Reichenbach says. 'When you have a medical school, it's a pretty obvious match.'

While Yale drums up such corporate funding, it has cracked down on relatively small transactions between individual faculty and commercial health care organizations.

Yale has in fact been at the forefront of cracking down on drug company efforts to influence individual researchers and clinicians, says David Rothman, a professor of social medicine at Columbia University and associate director of the Prescription Project, an effort to limit conflicts of interest in academic medicine.

A former Yale professor serves on the Prescription Project's advisory committee and drafted a series of cutting-edge guidelines for Yale on 'impeccable financial relationships between the pharmaceutical industry and physicians.' The guidelines restrict doctors' access to free meals and samples offered by companies.

There seems to be a striking contrast between how Yale addresses possible conflicts of interest affecting individual faculty, and how it addresses institutional conflicts of interest.

Yale has guidelines and an internal committee that probes for conflict of interest in research, says Stephanie Spangler, deputy provost for biomedical and health affairs. Any research funded by corporations is governed by strict set of rules and subject to peer review.

Much of Yale's formal ethics rules govern doctors and their interactions with pharmaceutical company representatives, long known for handing out free gifts and meals in an attempt to influence prescription-writing habits.

"We work very hard at an institutional level to make sure that any institutional relationships we have don't reach the individual clinician," Spangler says.

But there are no ethical guidelines in place regarding philanthropic gifts and their effects on research priorities. 'There's a spectrum of outside interests,' Spangler says. 'There aren't bright lines and hard and fast rules.'

That struck one external observer, Merrill Goozner, as hypocritical.

'Yale has put itself up for sale,' says Merrill Goozner, director of the Integrity in Science project at the Center for Science in the Public Interest in Washington, D.C. 'That's a fairly sad day for academic medicine.'

'The reality is that pharmaceutical company influence over the nation's medical schools is pervasive and unfortunate because it's skewing research,' Goozner says. 'You would think that medicals schools would take greater precautions, that they would draw a bright line.'

Even Rothman conceives that there is room for improvement.

Rothman of the Prescription Project says it may be time for the focus of concern over drug company influence to shift from individual doctors and researchers to universities as a whole.

'Is it an important issue? Absolutely. Is a frontier issue? Absolutely,' Rothman says. 'This kind of material compels us to go up one notch and start thinking long and hard about institutional conflict of interest.'

We have noted before that academic institutions which seem to be willing to ban financially small conflicts of interest affecting students and faculty seem unwilling to address larger conflicts affecting top leaders and the institution as a whole. Obviously, it is easier for leaders to tell their medical students not to accept coffee mugs or pizza from pharmaceutical company x than to themselves forego lucrative consulting agreements, or memberships in speakers bureaus or even boards of directors.

The temptation of corporate largesse is that it allows the leadership to continue to live in the style to which they have become accustomed. But if leaders are really worried how much a coffee mug may influence how a medical student thinks, they should be much more worried how much a $5 million donation may influence how they themselves think.

Post Title → Banning Logo Coffee-Mugs, Soliciting $5 Million Donations

Conflicts of Interest and Connecticut's Stem Cell Research Program

Connecticut was one of four states to set up its own grant program to promote human stem cell research, funded with $100 million over 10 years. But as the state gears up to start giving away money, the Hartford Courant reported "the state stem cell advisory committee is dominated by members with connections to Yale and UConn [University of Connecticut], the two institutions expected to get the lion's share of the state funds."
A line from the movie Independence Day might be appropriate here, "Oops."
Another day, another conflict of interest.
In 1915, the American Association of University Professor's monumental Declaration of Principles said that the purposes of the university are

• To promote inquiry and advance the sum of human knowledge.
• To provide general instruction to the students.
• To develop experts for various branches of the public service.

And where do we fit the universities' complex relationships with the Connecticut stem cell advisory committee?

Post Title → Conflicts of Interest and Connecticut's Stem Cell Research Program