09 July 2009

Trusted Systems: Human Factors in Play...

The case is U.S. v. Dreier, 09-cr-00085, U.S. District Court, Southern District of New York (Manhattan). It's only the beginning of a long hard road for many unidentified subjects (unsubs) as the fall out from the U.S. Economic crisis uncovers who was stealing others peoples money for their own fraudulent schemes.

Marc Dreier, the New York law firm- founder who pleaded guilty to defrauding hedge funds of more than $400 million, should be sentenced to 145 years in jail, prosecutors said, as a defense lawyer sought a term of as little as 10 years.

The rival requests came in court filings today in federal court in Manhattan. Dreier will be sentenced on July 13 by U.S. District Judge Jed Rakoff. Investors who placed more than $740 million with Dreier lost at least $400 million, lawyers said.

Operational Risks associated with 3rd party suppliers is a continuous concern. Effective due diligence with partners and service providers is a necessary task, on a quarterly basis. Many institutions leave it up to the service level agreement (SLA) or the written contract to be the monitor. To their demise, written words on a contract are not enough. Especially, when the partners are the lawyers themselves.

New York prosecutors on Wednesday said 13 people and a mortgage origination company have been indicted on charges of running a multimillion-dollar real-estate fraud that cheated lenders through sham sales.

The defendants include employees at the Long Island, New York-based mortgage company AFG Financial Group Inc, several attorneys and other defendants, according to Manhattan District Attorney Robert Morgenthau.

The investigation is continuing, and Morgenthau said the size of the scheme could eventually total $200 million.

One lawyer accused of engaging in fraudulent transactions was involved in transactions adding up to more than $100 million, Morgenthau said.

Lenders who were victimized in transactions made by that one lawyer included New Century Mortgage Corp, WaMu/Long Beach Mortgage Co, Countrywide Financial, First Franklin Financial Corp and Mortgage Network USA Inc.

The financial services sector will continue to be a quagmire for transactions for decades to come. The due diligence, fact checking and assurance that the "Deal" is a solid one will continue to under go a tremendous burden on all parties. The consumer, the lender and the underwriters.

The human factors associated with crimes such as fraud are well known. The study of the "Ponzi Scheme" has been a text book case for study in business schools for years. What may not have been so obvious is the science behind the human motivators. And maybe not even noticeable, is how accustomed the human is to trusting the automated world we live in. The fact that computers calculate what we have purchased in the retail store is one of the first trusted information scenarios we grow up with. How many people actually add up all of the dozens of items in their grocery cart, calculate the tax and any discounts to see if the Point of Sale (POS) system has done it's math correctly?

So what is Human Factors Science?

Human factors are sets of human-specific physical, cognitive, or social properties which either may interact in a critical or dangerous manner with technological systems, human natural environment, or human organizations, or they can be taken under consideration in the design of ergonomic human-user oriented equipments. The choice/identification of human factors usually depends on their possible negative or positive impact on the functioning of human-organization and human-machine system.

Did someone try to steal Goldman Sachs’ secret sauce?

While most in the US were celebrating the 4th of July, a Russian immigrant living in New Jersey was being held on federal charges of stealing top-secret computer trading codes from a major New York-based financial institution—that sources say is none other than Goldman Sachs.

The allegations, if true, are big news because the codes the accused man, Sergey Aleynikov, tried to steal is the secret code to unlocking Goldman’s automated stocks and commodities trading businesses. Federal authorities allege the computer codes and related-trading files that Aleynikov uploaded to a German-based website help this major “financial institution” generate millions of dollars in profits each year.

Trusted Systems and the information that flows from them is only as good as the programs that run them and the people who developed the millions of lines of code in the software. The trading systems at the NYSE, NASDAQ and Hang Seng Index are only as reliable as the calculations and the integrity of the systems themselves. When that trust is compromised in the trusted system, whether it be a program or a person, human factors take over.

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