The Great Betrayal: Fraud in Science / Edition 1

by Horace Freeland Judson

Overview

Fraud permeates all types of institutions today and now the world of science, the last bastion of respect and trust, is no exception. Dozens of cases have been uncovered in the past quarter-century-and the headlines continue. We can no longer shrug off fraud in science as the work of aberrant individual scientists, Horace Freeland Judson argues. Instead, we must look for its causes and its remedies in the structures and cultures of the scientific institutions themselves. Judson carefully details all types of scientific fraud and how they happen; considers the self-government of the sciences, including peer review and the refereeing of papers; and exposes the failures of academic, governmental, and legal responses. He also shows how the movement toward Internet publication of papers promises remarkable new checks on fraud and suggests how we can restore and defend the integrity of the greatest monument of human endeavor- the sciences.

Product Details

ISBN-13:	9780151008773
Publisher:	HarperCollins Publishers
Publication date:	10/28/2004
Edition description:	First Edition
Pages:	480
Product dimensions:	6.00(w) x 9.00(h) x (d)

About the Author

HORACE FREELAND JUDSON is director of the Center for History of Recent Science at George Washington University.A MacArthur Fellow, he is a recipient of a Guggenheim Fellowship and has written for many publications, including the NewYorker,Time, Nature, Cell, Lancet, and Gene. He lives in Baltimore, Maryland

Read an Excerpt

So consider fraud. Emerging from the end of a century-gilded age? robber barons?-we find our sense of ourselves and our society in certain respects altered, and that not pleasantly: we are bombarded, saturated, harried by fraud. Day upon day, week upon week, the cases multiply, in social institutions of the most varied kinds-in finance and industry, or in the professions, or in the churches, or in sports, the media, the sciences. We can no longer suppose these are isolated instances within largely self-governing, self-correcting systems. We can no longer escape considering the shapes and contexts of fraud.

Where to begin? By the nineteen-nineties, we had forgotten history's lessons. Six decades and more after the great crash of 1929, hardly anyone was still alive who remembered the roaring twenties-and the financial scandals and frauds that had come to light once the bubble burst. Who now recognizes the names Shenandoah Corporation or Blue Ridge Corporation, speculative investment trusts organized in 1928 and 1929 by Goldman Sachs, or the utilities holding company that Samuel Insull built and fraudulently ran, which at its height at the end of that decade owned more than five hundred power plants in the United States, with stock valued by the market at more than three billion dollars-then? Who now recalls Howard Hopson, or Ivar Kreuger, the Swedish match king, who speculated on a vast and fraudulent scale with other people's money, or the Union Industrial Bank of Flint, Michigan, whose officers conspired to embezzle millions to play the market? Yet these are but a few of the most flagrant of all those brought down and brought to light in the crash.

Walter Bagehot, the nineteenth-century British editor who built The Economist, wrote in 1873: "Every great crisis reveals the excessive speculations of many houses which no one before suspected." Oblivious to the past, we got the roaring nineties, which we all now recognize as an era of astonishing exuberance in enterprise and markets in the United States and worldwide. Fortunes beyond avarice, beyond need or the most extravagant luxury or even the possibility of their spending, counted in the tens and hundreds of millions, some in the billions, were gathered up by captains of industry and finance, of law and accounting, while millions of little people were towed happily along in their wake.

Then, instant notoriety-names we shall not forget in our lifetimes. One of the most exuberant enterprises of them all, an energy-trading company based in Texas called Enron, a Wall Street darling rated the fifth-largest corporation in the United States, was forced to acknowledge accounting practices that had kept huge liabilities off its balance sheets, and to restate its profits from 1997 through 2000-lowering its book value by a billion and a quarter dollars. On 2 December 2001, Enron went bankrupt. It was by far the largest corporate bankruptcy in world history. A brash upstart, politically well connected but hardly a member of the club, Enron might have seemed an aberration-a bad apple, however bloated.

Then came Global Crossing, a telecommunications company that had built a world-wide network of fibre-optic lines, which went bankrupt at the end of January 2002 when it was found to have inflated its revenues by still other dodgy accounting practices. Then on 4 April 2002 the story broke that John Rigas, founder of Adelphia Communications, a cable-television company, and two sons were charged with taking home upwards of 2.3 billion dollars in bank loans guaranteed by their corporation, without recording the sums on the books. Very bad judgements by deranged individuals, perhaps-an acute narcissism had led them to believe themselves immune to discovery, above the law. Such, anyway, is a standard psychiatric diagnosis of such actors. Plausibly applied, too, when at the end of May Dennis Kozlowski, head of Tyco International, a manufacturing conglomerate with a quarter-million employees and a stock that had risen fifteen-fold since 1992 when he became chairman, was indicted for evading New York City sales taxes on more than a million dollars worth of artworks. How petty this seemed. The artworks were as ill-judged as the evasion.

Then came WorldCom. An aggressively expansive telecommunications company beloved of Wall Street, in the spring of 2002 WorldCom was obliged to confess that it had manipulated its accounts to create 3.8 billion dollars in illusory earnings over a fifteen-month period. In April, Xerox, long thought a model of probity, paid a fine of ten million, admitting that over the previous five years it had fraudulently overstated its profits by 1.4 billion dollars. The net of corruption entangled others, perhaps chief among them Qwest Communications, the United States' fourth-largest local telephone network, which had been involved with Enron, with WorldCom, with Global Crossing in tricky schemes to inflate revenues.

Day upon day, week upon week, the scandals, the revelations spread. We remember the highlights. The accounting firm Arthur Andersen had been auditors of Enron, WorldCom, Global Crossing, and other companies that had hidden their liabilities or spiked their revenues; Andersen, long established and one of the big five accounting firms, was convicted of obstruction of justice, and driven out of business. The stink wafted through the corridors of brokerage houses. Merrill Lynch, though admitting no wrong-doing, paid penalties of one hundred million dollars to end New York State's investigation of whether its stock recommendations were tilted to favor companies whose investment-banking business Merrill coveted. On October 1, Morgan Stanley was censured and agreed to pay half a million to settle charges brought by the Securities and Exchange Commission.

More and more came out about the big ones. Mid-July of 2002, WorldCom filed for bankruptcy. In August, Scott Sullivan, once finance chief there, was indicted on charges of securities fraud and making false statements to the SEC; he pleaded not guilty, but in September two WorldCom executives of the next rank pleaded guilty to like charges. On September 13, The New York Times reported 2 TOP TYCO EXECUTIVES CHARGED WITH $600 MILLION FRAUD SCHEME. Not so petty, after all. Kozlowski's companion in the dock was Tyco's former chief financial officer, Mark Swartz. On September 24, the Rigas father and sons with two other Adelphia executives were indicted. On October 11, Troy Normand and Betty Vinson, two more former WorldCom officials, pleaded guilty to fraud and conspiracy charges-and by then the amount was up to seven billion dollars in expenses they had schemed to conceal. On November 1, The New York Times reported that "Andrew S. Fastow, the former chief financial officer of Enron, was indicted by a grand jury in Houston yesterday on 78 counts of fraud, money laundering, conspiracy and obstruction of justice." By mid-November, Qwest's overstatements were reported to have been upwards of a billion and a half. By year's end, in 2002 according to a count made by The Economist some two hundred and fifty American corporations had had to restate their accounts, compared to ninety-two in 1997.

Next to fall sick was the United States Olympic Committee. On New Year's Eve of 2002, The New York Times ran a story by Jere Longman, brief and on an inside page, saying that the committee was investigating its chief executive, Lloyd Ward, for abusing his position to help his brother's business get a contract. What developed from that was pure farce. The American Olympic movement was still living down the scandal of the award of the 2002 winter games to Salt Lake City, where it had turned out that Utah businessmen had given more than a million dollars in cash and other gifts to members of the International Olympic Committee. Now, seemingly every day, news stories reported a titanic-well, insensate-struggle between Ward and the United States' committee's president, Marty Mankamyer. Ward was the committee's fourth chief executive since 1999; Mankamyer was its third president since 2000, having taken over in 2002 after her predecessor resigned for falsifying her résumé. On January 13, the committee announced that although Ward had admitted the conflict of interest, its ethics panel had cleared him with a mild censure and the board had kept him on. On January 15, a member of the committee resigned, protesting the leniency. The next day another did the same. The next day, Friday, three more quit. On Monday, Mankamyer started a new ethics investigation. Whereupon on Tuesday seven officers of the committee demanded that Mankamyer resign. Custard pies flew in press and boardroom, and at the end of the week it emerged that the committee's ethics chairman, Kenneth M. Duberstein, who had cleared Ward, is a lobbyist for General Motors-on whose board Ward sits. The following Tuesday and Wednesday-by now we're up to January 28 and 29-the Commerce Committee of the United States Senate held hearings on the affair. Then Bill Briggs, a sports writer for The Denver Post, reported that a real-estate agent in Colorado Springs, where the committee has its offices, claimed that when Ward had bought land for a house, Mankamyer, who was a broker for a different firm, had "pressured her to surrender much of the commission she earned." On Tuesday, February 4, facing a no-confidence vote of her committee, Mankamyer resigned. The farce wasn't over. At the end of that week, the committee stripped Ward of a bonus of one hundred and eighty thousand dollars. The following Friday, the chairman of John Hancock Financial Services, a corporate sponsor that has given more than a hundred million dollars to the Olympics, said that the committee had acknowledged to him that it had "filed inconsistent and opaque" tax returns with the Internal Revenue Service. On Wednesday, February 26, The New York Times's chronicler, Richard Sandomir, reported that "Ward . . . escaped an effort last night to oust him during a stormy 90-minute conference call held by the organization's executive committee." On March 1, Ward resigned. On Monday, 3 March 2003, the Times ran a seven-hundred-word wrap-up of the affair by a reporter named Jayson Blair. Keep Jayson Blair in mind.

The epidemic spread to Europe. Royal Ahold, an international food-service and retailing conglomerate based in the Netherlands, had grown to be the world's third-largest grocer by expensive acquisitions, chiefly in the United States: 2.9 billion dollars for Stop & Shop in 1996; 2.6 billion for Giant Food, a supermarket chain, in 1998; and in May of 2000, 3.6 billion for US Foodservice. On 24 February 2003, Ahold disclosed accounting irregularities at US Foodservice that had inflated earnings there and also at the parent company by more than five hundred million dollars. That same day, Cees van der Hoeven, the chief executive officer who had driven the expansion, resigned. He was soon followed by eight others at the parent company, while two top executives at US Foodservice were fired. By early May, the amount of the irregularities reached 880 million dollars; other American divisions were also infected; a headline in the Financial Times-the pink-paper, London-based alternative to The Wall Street Journal-warned that Europe faced "an Enron-style accounting debacle."


Copyright © 2004 by Horace Freeland Judson

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Table of Contents

preface xi prologue 1

A Culture of Fraud

What's It Like? A Typology of Scientific Fraud

Patterns of Complicity: Recent Cases

Hard to Measure, Hard to Define: The Incidence of Scientific Fraud and the Struggle Over Its Definition

The Baltimore Affair

The Problems of Peer Review

Authorship, Ownership: Problems of Credit, Plagiarism, and Intellectual Property

The Rise of Open Publication on the Internet

Laboratory to Law: The Problems of Institutions When Misconduct Is Charged

epilogue notes and sources index

Editorial Reviews

"A delicious stew of scandal."

Washington Post Book World

"[A] thorough and impassioned analysis. An intriguing, and troubling, introduction to the problems that confront the practice of science. "

New York Sun

"Compulsively readable. Medical and science authorities, who have done so little against fraud, should be made to read this book."

Stephen Lock

PRAISE FOR THE EIGHTH DAY OF CREATION
“Mr. Judson is a graceful writer with a keen sense of the human as well as the scientific drama. Indeed, this is one of the best books of popular or semipopular science writing I have ever read.”
— JEREMY BERNSTEIN, THE NEW YORK TIMES BOOK REVIEW

From the Publisher

"A book certain to stir debate over both the cultural disease [Judson] diagnoses and the remedies he prescribes."

Booklist

"Shrewd and scholarly."

|Los Angeles Times

"A nuanced and sophisticated yet accessible view of scientific fraud."

New York Review of Books

"Judson turns an analytical light on faulty scientific practices. The persuasive results should be therapeutic to the body scientific."

Arthur Galston

"Shrewd and scholarly."

Los Angeles Times

"A book certain to stir debate over both the cultural disease [Judson] diagnoses and the remedies he prescribes."

Booklist